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Six Best Practices for Elevating Procurement at Your Organization

Sponsor content from Workday.

procurement business model

Among the countless insights to emerge in this era of sudden and accelerating digital transformation, your enterprise may have experienced the fragility of a supplier ecosystem that’s easily disrupted by unpredictable events.

With your critical suppliers so fully integrated into your operations, rethinking your procurement and spend management practices and adopting cloud-based technology can help bring business advantages to your organization.

If your enterprise tends to view procurement as a matter of logistics and cost containment, this practice is overdue for greater consideration. According to Shashi Mandapaty, chief procurement officer for the corporate tier at Johnson & Johnson, “Cost management still matters, but progressive procurement organizations have evolved to address nonfinancial aspects as well—priorities like innovation, risk management, resilience, and corporate citizenship.”

High-performing procurement organizations are driving enterprise growth and resilience by facilitating internal collaboration with stakeholders, identifying new sourcing opportunities, strengthening organizational agility and efficiency, and reducing risks and costs.

Key Steps to Take

To help your organization achieve the full potential of a high-performing procurement organization, adopting a start-up mentality toward changing your spend management processes and tools may be a rich opportunity for growth.

Regardless of where you are on your journey to high-performing procurement, it’s a good time to consider implementing six procurement best practices:

  • Establish a unified core for data. Making the right decisions, based on shared knowledge and common data and analysis, requires all information to exist with a shared viewpoint, language, and methodology—ideally, on a cloud-based platform.
  • Create a dynamic information flow. When your information moves in a continuous flow among finance and planning, internal customers, and suppliers, your organization can manage its procurement planning with greater confidence, collaboration, accuracy, and flexibility.
  • Automate manual processes. Adopting digital acceleration tools can help your organization eliminate manual transactional processes, providing easier access to procurement services by seamlessly routing work between procurement and finance systems, simplifying onboarding, and automating risk assessment and governance.
  • Improve collaboration with critical suppliers. With emerging business opportunities, growing risk management and regulation, and an increasing awareness of corporate responsibility, your relations with your supply network call for continual maintenance and communication of evolving operations.
  • Adopt an automated, consumer-like model. While sourcing and procurement have traditionally been reactive practices, dependent on incoming requests, your organization can take a more proactive approach that lets internal stakeholders access applications to initiate early engagement with procurement.
  • Enrich planning capabilities. By using a cloud-based platform, your procurement practice can provide internal stakeholders and partners timely, forward-looking analysis that empowers them to make better decisions, explore more scenarios, and support a continuous, agile planning model.

Adopting the Right Procurement Tools

Forty-five percent of respondents to a recent Harvard Business Review Analytic Services study report that the pandemic is accelerating the automation of the procurement process. In fact, enterprises that responded to the pandemic by accelerating the digitization of once-disjointed and risk-prone procurement processes may be starting to see the advantages of incorporating real-time insights into sourcing projects and performance.

Connecting procurement, stakeholders, finance, and suppliers with easy-to-use cloud-native spend-management technology can drive several immediate business results:

  • Expedited workflows: Cloud-based sourcing and supplier management tools can enhance collaboration, streamline processes, and provide anytime accessibility, aggregating information quickly and increasing efficiency.
  • Agility to support business continuity: More agile spending and supplier management can improve your organization’s cash flow, minimize risk, and ensure business continuity—all critical capabilities, particularly in a downturn.
  • Overall spend optimization: Enterprise leaders must ensure that their spend delivers returns on investment. Automating spend-management processes, including sourcing and procurement, through collaborative and easy-to-use technology can support alignment across the enterprise to meet business objectives and improve margins.
  • Intelligent supplier insights: With strong supplier relationships and a better understanding of their suppliers’ financials and criticality to the business, procurement professionals can act as scouts in the global marketplace to help identify new revenue opportunities, ensure business continuity, reduce risk, and support cost savings.

Your Future of Procurement

In an unpredictable and rapidly changing environment, the ability to compete may depend on managing your enterprise spend by automating your sourcing processes and sharing information to help you boost your agility, visibility, and digital connectivity.

An organization’s procurement practice can help offer competitive advantages by embracing new processes and adopting new technologies that give it a greater strategic role, helping you improve your offerings and your suppliers’ capabilities.

Beyond greater financial opportunities, procurement leaders using new tools and processes can introduce other advantages to your business, such as environmental stewardship and enterprise resilience. And adopting technology that automates transactional work can free your organization’s employees to forge new supplier partnerships, re-engineer products, and build a new model for sourcing and procurement processes and relationships.

Click here to learn more about procurement at Johnson & Johnson and see how Workday can help your procurement practice grow your business.

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procurement business model

Designing The Perfect Procurement Operating Model

The operating model of a procurement function needs to be consistent with a company’s overall strategy, global organization, and culture. It also needs to be aligned to its supplier market. Balancing internal and external pressures is a difficult task – and the target is often a moving one

The best organization will be the one that is adapted to your company’s DNA and strikes a balance between the constraints of the supplier market and the organization of key internal stakeholders.

Our latest Point of View discusses how to balance internal and external pressures and the evolution necessary for procurement organizations to reach a sophisticated equilibrium.

There are three key structural dimensions that drive the thinking on designing the Procurement operating model: supplier market, user needs, and stakes.

procurement business model

In reality, no organization can strike a perfect balance along these three dimensions. A choice must be made to focus on a given dimension depending on the company’s DNA, culture, organizational model, and overall level of maturity

Three Key Stages of Procurement Function Maturity

procurement business model

In our conversations with CPOs, we often hear the same questions: should my organization be centralized or more locally managed? The company is continuously evolving, how should I adapt the procurement organization? What is the right sizing of my organization? Should I consider outsourcing part of my organization?

Our latest Point of View dives deeper into these questions.

procurement business model

Gregory Kochersperger, Xavier Nouguès, Damien Calderini, Laurent Guerry, and Stephan Picard

Strategic Collaboration in Procurement

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Procurement Operating Models – which is right for your business?

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The procurement function plays a critical role in the pharmaceutical industry, where strategic sourcing, cost control, and value creation are paramount. 

Choosing the right procurement operating model is crucial for leadership teams to ensure maximum value capture and sustainability.

In this article we summarise some of the main  procurement operating models , including centralized, centre-led, hybrid, matrixed, and decentralized models – with advantages and disadvantages for each. 

procurement business model

Source: McKinsey

The pharmaceutical industry operates in a complex and dynamic environment, requiring procurement organizations to be agile, strategic, and cost-efficient. Procurement operating models determine how procurement activities are structured and managed within an organization. By understanding the different operating models available, CPOs and executive leadership teams can align their procurement functions with strategic objectives, optimize resource allocation, and drive value across the supply chain.

Understanding Procurement Operating Models

Centralised Model

In a centralized procurement operating model, procurement activities are consolidated under a single central function. This model enables streamlined processes, better negotiation power, and centralized expertise. However, it may suffer from a lack of local market knowledge and agility, limiting responsiveness to local needs.

According to McKinsey & Company, “A centralized procurement operating model can improve efficiency and reduce costs by leveraging economies of scale and standardizing processes across the organization.”

Centre-Led Model

The centre-led procurement operating model strikes a balance between central control and local flexibility. While procurement activities are managed centrally, dedicated resources are allocated to business units. This model allows for central coordination and strategic sourcing, along with local business unit flexibility and responsiveness. However, challenges in aligning goals and objectives and increased complexity in governance may arise.

According to EY, “A centre-led procurement operating model strikes a balance between central control and local flexibility, allowing for strategic sourcing at the centre and localised decision-making at the business unit level.”

Hybrid Model

The hybrid procurement operating model combines elements of centralized and decentralized approaches. It allows for a balance between centralized control over strategic categories and local autonomy for tactical purchasing. The hybrid model offers flexibility to adapt to varying needs but may present challenges in aligning central and local teams.

According to Deloitte, “A hybrid procurement operating model allows for a balance between centralized control and decentralized decision-making, leveraging the strengths of both approaches to optimize value creation.”

 Matrixed Model

The matrixed procurement operating model organizes procurement resources based on a combination of category expertise and business units. This model enables in-depth category expertise and specialization, strong collaboration between procurement and business units, and enhanced agility and responsiveness. However, managing matrix relationships and potential resource conflicts and role ambiguity can be challenging.

McKinsey & Company states that “A matrixed procurement operating model enables deep category expertise while maintaining close collaboration with business units, fostering a strategic approach to procurement.”

Decentralized Model

In a decentralized procurement operating model, procurement activities are fully devolved to individual business units. This model empowers local business units to have full control over procurement decisions, fostering agility and responsiveness to local market needs. However, it may result in fragmentation and duplication of efforts, limited leverage in negotiations and cost control, and challenges in aligning strategic objectives.

According to EY, “A decentralized procurement operating model empowers local business units to have full control over procurement decisions, fostering agility and responsiveness to local market needs.”

Which roles should sit in Central Centre of Excellence vs Business Units?

Within the central CoE, roles and skills such as strategic sourcing, category management, technology adoption and implementation, data analytics, vendor management, and procurement strategy development typically reside. The CoE acts as a centre of expertise and ensures standardization, best practices, and strategic direction for the procurement function.

In the business units, roles and skills related to tactical purchasing, supplier relationship management, stakeholder engagement, contract management, and demand forecasting are commonly found. The business units are responsible for executing procurement activities aligned with their specific operational needs while maintaining collaboration and communication with the central CoE.

Strengths and Weaknesses of each model

This table outlining the strengths and weaknesses of different procurement operating models:

Disadvantages

Centralised.

– Consolidated purchasing power and leverage in negotiations – Standardization of processes and policies – Centralized expertise and category management

– Limited flexibility and agility in local market response – Potential for delays in decision-making due to central control – Challenges in addressing unique business unit needs

Decentralised

How a hybrid approach can combine the best of centralised and decentralised.

To leverage the best aspects of centralised and decentralised procurement models, organisations can adopt a hybrid approach that combines the strengths of both models. Here are some strategies to use the best of both:

  • Strategic Category Management : Centralise strategic category management functions, such as supplier relationship management, contract negotiations, and global sourcing strategies. This allows for consolidated purchasing power, standardised processes, and expertise in managing critical categories.
  • Local Operational Autonomy: Provide business units or local teams with autonomy in tactical procurement activities that are specific to their needs. This allows for local market knowledge, faster decision-making, and responsiveness to unique business requirements.
  • Collaborative Governance Structure : Establish a robust governance structure that encourages collaboration between the centralised procurement function and business units. This ensures alignment of objectives, effective communication, and coordination to optimise procurement outcomes.
  • Clear Roles and Responsibilities: Define clear roles and responsibilities for the centralised procurement team and the decentralised business units. This clarity helps avoid duplication of efforts, eliminates ambiguity, and promotes accountability at both levels.
  • Data Sharing and Analytics: Implement systems and processes for sharing procurement data and analytics between the centralised function and business units. This allows for informed decision-making, identification of trends, and leveraging data-driven insights for strategic procurement initiatives.
  • Standardised Policies and Processes: Develop standardised procurement policies, processes, and tools that are applied across the organisation. This ensures consistency, promotes efficiency, and supports compliance while allowing for flexibility in localised execution.
  • Continuous Improvement and Learning: Foster a culture of continuous improvement and learning by encouraging knowledge sharing and best practice exchange between the centralised procurement function and business units. This promotes innovation, increases efficiency, and drives value creation.
  • Performance Metrics and KPIs: Define performance metrics and key performance indicators (KPIs) that align with organisational goals and are applicable to both the centralised procurement function and business units. This enables tracking of performance, identification of areas for improvement, and recognition of successes.

How to decide which operating model to use

The choice of procurement operating model should consider various factors to ensure alignment with organizational goals and maximize value creation. The following recommendations provide guidance for model selection:

When considering procurement operating models, several key factors should be taken into account. These factors help organizations align their procurement functions with strategic objectives, optimize resource allocation, and drive value creation. The main things to consider include:

1. Organizational Strategy  

Understand the overall strategic goals and objectives of the organization. The procurement operating model should align with these strategic priorities to support value creation, cost optimization, risk management, and innovation.

2. Team Size and Spend

Evaluate the size of the procurement team and the organization’s spend on goods and services. This assessment helps determine the level of centralization or decentralization needed to achieve efficiency, economies of scale, and effective resource allocation.

For smaller teams or organizations with limited spend, a centralized or center-led model may be more suitable. These models enable efficient resource allocation, centralized expertise, and cost control. Larger teams or organizations with substantial spend can consider hybrid or matrixed models to balance central control and local flexibility, leveraging category expertise and business unit collaboration.

3. Geographic Complexity

Consider the organization’s geographic footprint and the complexity of its operations across different regions or countries. Geographic diversity may influence the need for local market expertise, responsiveness, and cultural understanding, which can impact the choice of operating model.

In geographically complex environments or when remote working is prevalent, the hybrid or decentralized models offer advantages. They allow for local market knowledge, adaptation to regional nuances, and faster decision-making. Leveraging collaborative technologies and communication tools is crucial to ensure effective coordination and alignment across locations.

4. Technology Readiness

Assess the organization’s readiness and willingness to adopt digital technologies and automation in procurement processes. Some operating models may be better suited for technology integration and leveraging data analytics, while others may require more centralized control for standardization and technology rollouts.

When rolling out technologies, such as digital procurement platforms or automation tools, a centralized or center-led model may be preferable. This ensures consistent implementation, standardization, and maximum utilization of technology across the organization. Hybrid and matrixed models can also be effective if supported by strong governance and coordination mechanisms.

5. Supplier Landscape

Analyze the organization’s supplier base and the nature of relationships with suppliers. Consider whether the organization relies on a limited number of strategic suppliers or engages with a broader range of suppliers. This assessment can influence the need for central control or local flexibility in procurement decision-making.

6. Category Management

Evaluate the complexity of the organization’s procurement categories. Some categories may require deep expertise and centralized control, while others may benefit from local business unit involvement and specialized knowledge. Consider the balance between central coordination and category-specific requirements.

7. Risk Management

Assess the organization’s risk appetite and the criticality of risk management in procurement. Centralized models may provide better visibility and control over supplier risks, while decentralized models may allow for more localized risk mitigation strategies.

8. Stakeholder Alignment

Consider the level of stakeholder involvement and collaboration required in procurement processes. Some organizations may benefit from a centralized or center-led model that promotes cross-functional collaboration, while others may prefer decentralized models that empower business units to make procurement decisions aligned with their specific needs.

Organizational Culture: Understand the organization’s culture and decision-making style. Some organizations may have a strong preference for centralized control and standardization, while others may prioritize empowerment and autonomy at the business unit level. Aligning the operating model with the organizational culture can enhance adoption and effectiveness.

Scalability and Flexibility: Consider the organization’s growth plans and the ability of the chosen operating model to scale and adapt to changing business needs. Ensure the model can accommodate future expansions, acquisitions, or changes in market dynamics without significant disruptions.

Indirect procurement, which includes categories such as IT, facilities, and marketing, is often centralized due to the potential for economies of scale and synergies. On the other hand, direct procurement, involving raw materials and manufacturing components, may benefit from decentralization to align with specific business unit needs and foster supplier relationships.

By considering these factors, organizations can make informed decisions when selecting a procurement operating model that best suits their unique needs, promotes efficiency, and enables the capture and sustenance of maximum value.

For example:

For a large big pharma company with over 10,000 employees located around the globe, a hybrid or matrixed procurement operating model is recommended.

This model allows for a balance between centralized control and local flexibility, which is particularly beneficial for organizations of this scale. The hybrid model enables centralization of strategic category management, supplier relationships, and global sourcing strategies to achieve economies of scale, negotiate favorable contracts, and drive consistency. Simultaneously, it provides autonomy and operational decision-making authority to local business units to adapt to regional nuances, leverage local market knowledge, and ensure responsiveness. The matrixed model supports collaboration, cross-functional alignment, and the sharing of expertise across the organization, enhancing efficiency and innovation.

For a small biotech startup   a centralised or centre-led procurement operating model is recommended. Given the limited scale and resources of a small startup, a centralised model allows for efficient resource allocation, cost control, and consolidated expertise. Centralized procurement can help leverage purchasing power, negotiate favourable terms with suppliers, and ensure consistent processes across the organisation.

A centre-led model could be suitable, where the procurement function operates as a centre of excellence (CoE) supporting the business units with strategic sourcing, category management, and technology adoption. This model allows for collaboration and guidance from the CoE while empowering business units to handle tactical purchasing aligned with their specific needs.

To capture the value available from digital technologies, data analytics, and the application of machine learning and AI in procurement, organizations should adopt operating models that embrace digitalization. Centralized or center-led models facilitate data-driven decision-making, advanced analytics, and the integration of digital platforms. Collaboration between the CoE and business units is crucial for successful implementation and utilization of these technologies.

Centralized or center-led models facilitate data-driven decision-making, advanced analytics, and the integration of digital platforms. Collaboration between the CoE and business units is crucial for successful implementation and utilization of these technologies.

How to make the selected model work

Once a procurement operating model is chosen, it is essential to establish effective processes and ways of working to ensure its success. Key considerations include:

Stakeholder Engagement and Communication

Frequent and proactive stakeholder engagement is vital to secure buy-in and alignment with the chosen model. Regular communication channels, such as town hall meetings, workshops, and dashboards, should be established to update stakeholders on procurement initiatives, share successes, and address concerns. Collaboration and transparency build trust and ensure that all stakeholders understand the benefits and expected outcomes.

Processes and Ways of Working

Clear governance frameworks, decision-making protocols, and performance metrics should be defined and communicated across the organization. This ensures accountability, consistency, and continuous improvement. Regular meetings between the CoE and business units, such as operational reviews and cross-functional workshops, facilitate knowledge sharing, problem-solving, and the exchange of best practices

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Liz Phelan   |   07 Mar 2022   |   6 min read

Procurement Operating Models: Which is the Best One?

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What is the ideal procurement operating model? There have been countless studies done on the topic, and the answer isn’t clear cut. Each model offers its own pros and cons, and these must be weighed up against the needs of your business.

In this article, we cover each of the different models in depth, and what you need to consider when shifting how your organisation operates.

The Major Procurement Models

decentralised centralised centre led procurement

There are three dominant operating models for procurement: decentralised , centralised , and centre led .

Decentralised Procurement

A decentralised procurement model (sometimes called a local procurement model) is when individual stakeholders can make purchases for their department. This often happens with limited oversight. Let’s look at an example:

Abby is the Head of Marketing for a mid-sized organisation called Jeans Co. The department needs some new video creation software, so she asks her manager for permission. She’s given the thumbs up, so she just goes out and buys it using a company credit card and sends the invoice to Accounts. Abby doesn’t examine any cheaper options. A month into using the software, she finds out that another department already has an existing license for the same product. The company is now paying for it twice.

When Abby engages in procurement and purchasing, everything happens fast. In a decentralised environment, it’s as simple as putting in a purchase order so her team can keep moving.

However, because things are decentralised, opportunities for cost savings are lost. In this scenario, if Abby had visibility on what other teams had purchased, she could have avoided putting in the same purchase request.

Consider this scenario – what if Abby had bought the software because she had shares in the company?

This would result in unethical procurement, because she would have a conflict of interest and be using her position for personal gain. Preventing this would require a control method . In this case, the supervisor was Abby’s direct manager, who may not have the time or knowledge of procurement best practice to prevent this risk.

Centralised Procurement

A centralised procurement model is when a single department handles the purchasing of goods and services for a whole organisation. This is usually done from a central location, like a head office. Let’s look at another example.

George is the procurement manager for a large mining company and works out of the head office in Canada. However, many of the mines are located in remote regions in Australia. While the sites are managed by project managers, most of their procurement is handled by George’s team. Because George has limited knowledge of the area, he has to constantly gather information from these project managers. This, on top of the distance, causes delays in delivery. It’s also hard for George to build up a relationship with local suppliers and get to know their capabilities. This lack of regional knowledge eventually causes George to select the wrong supplier for a tender. The supplier fails to deliver on important equipment needed for operations, and this leads to costly delays.

In this example, George has complete oversight of any procurement event, and can make sure everything follows best practice. Because of this, he won’t fall into the same trap as Abby from earlier, who caused the same thing to be purchased twice. When this is running well, spend can be done under contract, and economies of scale are possible.

However, there’s an obvious delay caused by having to get procurement involved in the process. When you’re using a centralised procurement model, all purchases need to be done by a handful of people.

Naturally, staff get frustrated with this bottleneck in the purchasing process. There’s also an increased chance they’ll be unhappy with what they get because they’ve got to rely on someone understanding their needs well enough to purchase the right thing (and that person might fail, like with George).

This can happen for more reasons than a lack of local knowledge or subject matter expertise: the stakeholder might not articulate their needs well, their priorities might have changed since they were consulted, or the central team wanted to buy a “one-size-fits-all” solution to save money.

As a result, staff feel disempowered, and start to wonder why they just can’t do it themselves. And when they decide to do just that, the result is maverick spend: the bane of procurement professionals everywhere.

Centre Led Procurement

A centre led procurement model is when any department can purchase what they need, but they’re guided by the experts. Let’s look at a third example.

Bruce is the Procurement Manager for a large regional city. Any department can purchase something so long as they follow procurement guidelines and spend below a certain threshold. Outside of handling strategic procurement, Bruce and his team are tasked with making sure all staff do the right thing. There have been a few corruption scandals in the past, and the council also needs to prove they are spending local to meet state-set benchmarks. Unfortunately, the team have to field endless requests from staff about how to go about procurement properly. They find the policies confusing and hard to follow. Also, it’s hard for Bruce and his team to get visibility on what staff are doing – important correspondence is lost in people’s inboxes, meaning the city is far from audit-ready.

This is also called a “hybrid” approach, since it can deliver the best of both the centralised and decentralised models: staff should be able to buy what they want, while guided in a way to prevent noncompliance.

So, what’s going wrong in the above example? Bruce’s team is looking to “lead”, but they are lacking the means to do it. They’re also having trouble dealing with all the administrivia of making sure staff comply with proper policy.

What Bruce’s team is missing is procurement software to make this task easier. By making sure staff use a dedicated procurement solution to go to market, the central team can maintain oversight but only get involved when required. Everything can be captured in the system and made audit ready.

The trick is getting users to start using the system. After all, the software is only good if the business units adopt it. As many people know, user buy in can make or break a new process or system. This is why it’s vital to select a solution that supports compliance by default.

Infographic: Decentralised VS Centralised VS Centre Led Procurement

Since each model has a myriad of pros and cons, here’s an infographic that compares the main points of comparison between these models.

decentralised vs centralised vs centre led procurement models

So, what is the Right Model?

The bottom line is it depends on your needs. It’s hard to go wrong with a centre led model so long as you’ve got software to support it. This is why many organisations are gravitating towards this model in both the public and private sectors.

However, the other models are also viable. For example, if you’re running a small commercial organisation, it’s easy to keep an eye on what staff are doing. This makes the speed of the decentralised model or the price control of the centralised model much more viable and attractive.

Centralised purchasing can also work for large organisations so long as you’ve got a highly resourced and skilled procurement function, and don’t mind risking a bit of operational inefficiency in order to keep a tight rein on compliance.

You can also use software to reduce the risk of maverick spend and noncompliance in a decentralised model.

Picking the Right Software for Decentralised & Centre Led Procurement

Looking for an easy-to-use procurement solution that gives you visibility on spending behaviour, makes sure staff comply with policy, and automates all your trivial tasks? VendorPanel is a source-to-pay solution built to support centre led and decentralised procurement - it can guide buyers through the entire procurement cycle according to your organisation's preferred process.

To learn more about our offerings, contact us today . Alternatively, read some of our customer stories and why we’re the solution of choice for Melbourne Airport, BGIS, Ambulance Victoria, and several Whole of Government arrangements.

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Your Ultimate Guide to Understanding Procurement

Procurement as a process is a little more complicated than just buying office supplies – since many organizations have entire teams dedicated to their procurement and purchasing activities. So what exactly does it encompass?

We’re going to thoroughly explore this vital component of corporate strategy. From what the process entails, the many ways to approach and adopt it, to related business concepts, you’ll learn how to utilize and improve this process to better achieve your individual business objectives. 

What Is Procurement?

So what does procurement do? Procurement is the act of sourcing and purchasing goods, services, or raw materials for a business from vendors or suppliers. It includes every action involved in and required for sourcing these goods or services, and an official procurement process helps purchasing teams request, approve, and track every purchase and control business spend.

Regardless of size or industry, no business is entirely self-sufficient. Everyone relies on purchasing goods and services provided by third-party suppliers to maintain internal operations and or manufacture products to sell.

Procurement involves not only deciding on what to buy based on needs and budget, but also ensuring that the company is receiving enough value from the purchase. We all perform this work ourselves as individuals. Any purchase you make depends on the quality of the product, the amount of time it takes to be delivered to your doorstep, how much value you’ll get out of your purchase, and many other factors.

But the process involved for businesses, nonprofit organizations, and governmental bodies is even more complex. In addition to finding out what goods and services offer the best value for money, procurement involves:

  • Determining needs based on inventory management and market demand
  • Planning the budget and inventory far in advance
  • Conducting market research to find the ideal third party vendor
  • Negotiating contracts with suppliers and undergoing competitive bidding
  • Handling vendor relationships
  • Performing quality assurance on the received goods and services
  • Ensuring that the supply for a raw material or an essential service is always in stock
  • Maintaining a purchase order record and other ways to measure procurement performance

For direct procurement (which we’ll explore in more detail below), you can think of procurement as a systematic approach to acquiring goods and services within a supply chain. A procurement officer needs to handle all the activities involved with finding the right goods and services a business needs, all while staying aligned with the overall goals of the business.

This broad definition just scratches the surface for what the concept entails. Let’s expand upon it now.

How Procurement Fits Into an Overall Corporate Strategy

Don’t think that this process only matters to the financial department. Procurement actually has an overarching function linked with other aspects of running a business. The profit margin and bottom line are the first consideration of a buyer’s business during a B2B transaction.

Beyond the financial aspects, procurement strategy directly impacts the overall corporate strategy in a few ways.

  • Corporate identity.  What are the beliefs of your organization, and what does it stand for? The answers to these questions must align with your choice of goods and services. For example, if you pride yourself on environmental friendliness, the suppliers you choose better match that dedication.
  • Position in the market.  Who is your target audience, and what do they expect of you? Choose your vendor relationships in a way that matches with the needs and preferences of your client base.
  • Human resources.  Whomever you hire ultimately affects how the procurement process is approached. Are you hiring a properly experienced procurement professional, or should you entrust purchasing activities to someone else?

It makes sense that administrators often put a lot of time and effort into creating and staffing a procurement department since it basically defines the business model.

The Types of Procurement

This process is often subdivided into a few categories: direct, indirect, and service. How much each type is used depends on the company, but all of them play an essential role.

Direct Procurement

Some goods and services are required for the creation of your product lineup. A laptop manufacturer, for example, needs to order individual computer components like memory, batteries, and displays. This type of direct purchase is common in the manufacturing industry in general.

Because this category directly impacts your revenue and growth, the supplier relationship matters in the long-term, as not many companies change raw material sources often.

Indirect Procurement

Other purchasing activities are intended primarily to serve the internal, daily operations of the business like purchasing cloud-based software solutions, office equipment, travel expenses and utilities. Acquiring goods in this sense “keeps the gears turning,” so to speak, and is most common in service-based industries. 

The goods and services we’re talking about here are often consumable and temporary when compared to that of direct procurement, hence why the supplier relationship is often treated as short-term. However, forming trusting supplier relationships within indirect procurement are also important, and can serve buyers when shopping around for best prices and renewing contracts. 

Services Procurement

Companies never operate entirely as a homogenous group; you need ways to connect employees and processes together. You might pick up professional consulting services, software subscriptions, or contingent workforces to do so.

Services procurement, which “fills in the gaps” to generate a smooth workflow, often results in contract-based relationships with vendors.

Key Differences Between Procurement and Purchasing

One question that inevitably comes up is how to differentiate procurement vs. purchasing. The concepts are entwined but not the same, as procurement refers to more than just purchasing activities.

Procurement involves the subset of unique processes that take place when an organization is sourcing something. These include negotiations with various vendors or suppliers, the process of onboarding vendors to the organization, and the strategic selection of goods and services based on an organization’s budget, values and more.

Purchasing, simply put, relates to the process of how goods and services are ordered. Purchasing sits within the larger process of procurement. To help differentiate the two further, keep in mind that they differ in terms of:

The purpose of procurement is to fulfill a certain company need in a manner that is strategic. This goes beyond the simple process of ordering a service or good, and digs deeper into the process of exploring different options and identifying the most ideal one based on certain criteria the company defines (like cost, location of the provider, etc.).

The purpose of purchasing is to arrange company spending and acquire the chosen good or service.

Main Considerations

The process of procurement tends to place more emphasis on the value of a certain good or service, more so than its cost. Purchasing focuses more on price than value, which makes sense considering that purchasing centers around company expenditure.

Order of Operation s

Remember when we mentioned that procurement involves the act of purchasing something? Indeed, purchasing fits within the larger scope of procurement. The scope of procurement activities extends from identifying a need all the way through to fulfilling it, with purchasing standing as the point toward the end of the procurement process when the need is fulfilled.

Tasks Involved

We’ll delve deeper into the exact steps of procurement, but for now, having a basic understanding of the different tasks involved in procurement can really help solidify the ways procurement differs from purchasing. The tasks involved in procurement differ to some degree across companies, and typically involve:

  • Identifying the need for the good or service
  • Submitting a purchase request
  • Exploring the different available sourcing options
  • Negotiating and closing contracts with selected suppliers
  • Onboarding suppliers and collaborating on related documentation
  • Creating a purchase order
  • Receiving the good or service
  • Conducting three-way matching
  • Approving the invoice and executing payment

By contrast, purchasing focuses on fundamental tasks surrounding obtaining the good or service: ordering, receiving, and payment. That is, it focuses on transactional activities like purchase order handling, purchase requisitions, and payment processing.

Impact on Suppliers

It’s important to consider that suppliers or vendors are a key element to both procurement and purchasing processes. For each of the two processes, the supplier’s point-of-contact within the company may be different. The supplier’s relationship with each of these POCs will most likely also be different.

The person responsible for purchasing from the business’s side will be more focused on executing the transaction most efficiently, whereas the person or people involved in procurement will be interested in developing a friendly and mutually beneficial relationship with the supplier. Both strategies are important components of what is known as supplier performance management.

Differences with Other Related Workflows

Even some professionals make the mistake of using procurement interchangeably with related processes like sourcing and supply chain. Let’s clear up those terms next.

Procurement vs. Sourcing

Sourcing, as well as global sourcing and the purchasing process, is considered a subcategory of procurement. During this step, a business searches for potential suppliers for the goods and services it needs using data from market reports and industry experts. It will consider various factors of each vendor, including:

  • Cost and quality
  • Reliability
  • Supplier certifications
  • Financial risks
  • Potential logistical problems

It’s heavily recommended not to limit yourself to a single source. Not only is it more difficult to negotiate competitive rates this way, but you also put yourself at risk of potential disruptions if that supplier is undergoing difficulties.

Market awareness is key here, as a buyer will be able to take advantage of new opportunities and changes in the range of suppliers.

Procurement vs. Supply Chain

Another commonly confused term is supply chain management, of which direct procurement is actually a component. Procurement refers to the upstream work of obtaining goods and services for maintaining internal operations and manufacturing products. The supply chain covers both upstream and downstream workflows for the creation of a business’s product line.

To be more specific, the supply chain workflow picks up after procurement finishes. The steps that follow are:

  • Manufacturing the business’s product output
  • Transporting those finished units to wholesalers, warehouses, and distribution centers
  • Distribution to retail
  • Final sales to end consumers

Quality control and logistics matter significantly in the field of supply chain management. The goal of the process is to increase revenue while keeping supply rates and customer satisfaction up. As long as the output of your company reaches the hands of the consumer seamlessly, supply chain management is doing its work.

What Makes Up the Procurement Process?

First, we need to understand how it flows. What exactly happens in the boardroom of a procurement or finance department meeting?

What Is the Procurement Process Flow?

From a requisition to a purchase order to the approval of the invoice, procurement refers to a set of steps unique to every business that practices it. Nonetheless, you can find 3 constituents common to all applications of procurement.

  • Procedure.  The company should specify exactly what steps must be completed while reviewing, accepting, and receiving orders from suppliers. A disorganized or poorly implemented procedure results in inefficiencies and potential mistakes that can lead to delays and missed payments.
  • Administration.  Who are the stakeholders here, and what responsibility does each one have towards the success of the workflow? Are proper authorizations being made at each step? The larger the organization and the more important the purchase, the larger the number of people involved becomes.
  • Documentation.  Paperwork is simply a reality of procurement process flow, as storing information later for reference and auditing makes it hassle-free for both the buyer and the seller.

A process flow is essentially a flowchart detailing what the next step is regarding the purchase process. When everyone knows what the whole procedure looks like, procurement becomes transparent and fair for all. A chart also helps you identify potential areas of improvement or gaps in the process.

What Are the Steps Involved In Procurement?

The exact flow differs from business to business, as every company has its own requirements, needs, and preferences. Let’s take a look at a typical example of flow:

  • The business identifies a need.  Department heads, managers, and other stakeholders collaborate to find and justify what they need to buy. Inventory control plays a role so that enough stock for raw materials and services is always available to the business without paying for too much.
  • The stakeholders write up a purchase requisition.  If a supplier is already available, the request to buy is sent to the designated approval team responsible for ensuring that orders are in line with business objectives. Upon approval, the order becomes a purchase requisition.
  • … or an RQF.  If a supplier is not available yet, the procurement department sends out RFQs, or Requests for Quotations to find an ideal vendor. This step can be direct negotiation or an auction-based tendering process. Market analysts compare supplier quality and determine which ones would result in the best return on investment for the company.
  • Requisitions are reviewed.  In either case, an approval stage follows where end users and department heads decide whether or not the need is valid and funding is available. If approved, the orders become purchase requisitions that detail the exact technical specifications and other attributes of the order.
  • The purchase is made.  Once approvals are complete, contracts are negotiated, and the vendor is decided upon, the vendor delivers the goods and services. Upon receipt of the order, the business undergoes a 3-way match, where the purchase order, the vendor invoice, and the delivered goods are all cross-checked to ensure accuracy. Any discrepancies or issues with the delivery are brought up early on to prevent problems later.
  • A record is made of the transaction.  The procurement team’s task does not end at the final transaction. It’s also responsible for keeping tabs on all this financial activity in a central location. In case issues come up or auditing is needed later, looking back at records is the best way to develop solutions.

Among the sub-processes of procurement are demand planning and forecasting, the selection of suppliers, vendor negotiations, and KPI assessment.

Demand Planning and Forecasting

You don’t have to be an expert to know that market research matters. Keeping customers engaged with your brand means not only delivering on what they want but also doing so in a timely manner.

For a procurement department to plan its purchase orders and inventory stock properly, it must predict fluctuations in consumer demand and make adjustments accordingly. Otherwise, the organization risks being understocked and failing to meet demand or being overstocked and losing revenue to unsold units. The advantages here include:

  • Proper handling of spikes in demand.  Holidays, natural events, or even seasonality can cause spikes and dips in demand that the supply chain will struggle to meet if not for proper demand planning.
  • Labor management.  Having too many or too few staff members can be costly for the manufacturing process. Avoid delays in production by hiring temporary additional staff members when you need them.
  • Cash flow management.  In addition to preventing unsold inventory, demand forecasting tells financial teams when to arrange for credit to bridge dips in demand.

Using factors like historic customer activity, current events, and data analytics, a business can adjust the supply chain to match what the expected output should be.

Supplier Selection

Whether it’s local or international, the right choice of a vendor will give you the most cost-effective service for what you need. Businesses issue RFIs (Requests for Information) to gain knowledge of various vendors, including their financials and previous activities. Cross-referencing these documents with your needs is part of the selection process.

From there, you can start issuing RFQs to detail the nature of your order, such as its volume and expected timescale. Once a supplier is chosen and tendering evaluation has begun, it’s time to check on the terms of the contract. You might look at:

  • Price comparisons with other vendors
  • The ability to fulfill the order accurately
  • Quality of the product or service
  • Credit checks
  • Supplier audits

A procurement contract follows that will specify terms and conditions to minimize risk for both parties. You will use this document for maintaining supplier relationships, resolving any issues, and measuring your key performance indicators (KPIs) later.

Having a positive relationship with your suppliers will put you on good terms with the industry, improve future procurement activities, and might allow you to manufacture products faster and bring them to market before the competition.

Negotiation

Often described as an “art,” negotiation requires both personal skills and financial awareness to pull off effectively. When done right, it allows both your business and the supplier to come to terms that benefit both parties. In terms of procurement, that means the best price at the best quality at a reasonable timeframe.

Negotiating in business can rarely be done in a day. Expect to talk for multiple days before you reach agreeable conditions. Tested negotiation strategies include:

  • Researching your vendor or supplier.  What motivates the supplier to do well in its field? Understanding what the deal looks like from its perspective helps you find where you can appeal to its interests.
  • Having a base price rather than a range.  It may be tempting to offer a price range to your vendor up-front, but usually that strategy results in the highest price in that range being agreed upon. Be direct about your minimum price beforehand.
  • Be flexible.  You will inevitably have to compromise in some situations, so don’t go in with too many concrete requirements.
  • But know what you can’t accept.  Remember your non-negotiable factors as well so that you don’t end up with an unfavorable agreement. Establishing fundamental requirements is still necessary in most cases.
  • Know when to give up.  A skilled negotiator will know early on whenever agreeable terms cannot be met. Always have solid alternatives in place, which will give you something to fall back on and potentially be a point in your favor during the meeting.

There are far more aspects to strong negotiations than we can cover here, but some techniques and pitfalls to watch out for are:

  • Preparing in advance.  Finalize an agenda for the meeting and do your research on the vendor beforehand to answer any questions quickly. The more prepared you are, the faster the process can be for both parties.
  • Choosing the right people to join you.  What team members in your company are best at building a rapport with the vendor? Strong communication skills obviously matter when it comes to negotiation.
  • Have an ending summary.  At the conclusion of the meeting, summarize all the agreed-upon points in writing to prevent misunderstandings.
  • Avoid aggression.  Remember that negotiations aim to build positive relations for both participants. It may be tempting to take the aggressive route, but keeping emotions mitigated and avoiding arguments are always ideal.

Negotiation is a complex field that requires strong personal skills, prior research of the vendor, and the right strategies and tactics to pull off effectively.

Procurement KPIs

It’s much easier to understand the progress and performance of your business when you have KPIs to measure against. If any of these metrics dip below acceptable levels, procurement teams will know exactly when adjustments should be made. The following are the essentials.

  • Purchase order  cycle time, cost of each PO, and lead time.
  • Supplier  availability, quality, and compliance level.
  • Return on investment , including savings and cost avoidance.

Procurement key performance indicators come in many forms. Additional ways to measure success include:

  • Inventory.  Warehousing management is a common bottleneck for procurement efficiency. KPIs to measure here include stock and fulfillment accuracy, back order rate, and inventory turnover.
  • Employees.  How effective is your staff training? What percentage of your employees are performing well or underperforming? Questions like these matter since staff productivity has immense implications for procurement.
  • Timeframe.  Speed can be just as important as cost when it comes to inventory procurement. Pay attention to lead time, purchase order cycle time, and other factors.
  • Return on investment.  There are always ways to optimize your investment, whether it’s determining cost per order or finding competing suppliers to purchase from.

Measuring success through KPIs not only helps you track progress but also convinces upper management of the importance of procurement.

Who Works on Procurement?

Though procurement is an important and complex task, not all organizations have a dedicated team. Smaller organizations usually put the finance team in control of the procurement function, while larger companies with more complex purchasing requirements may employ a dedicated procurement team to work alongside finance and AP.

A qualified team can streamline the business’s spending through:

  • Risk management
  • Cost savings
  • Understanding of compliance
  • Contract management

At the same time, procurement must also involve collaboration among other departments as well. It’s vital to maintain direct lines of communication with the sales, operations, marketing, distribution, manufacturing, and finance departments.

At the helm of most dedicated teams are the chief procurement officers (CPOs) who typically also serve on the board of executives. These professionals align procurement and supply chain efforts with the goals of the company.

Designing a Procurement Strategy For Your Business

Even if your business already has procurement processes and related systems in-place, it’s never too late to set up a strong procurement strategy to take advantage of the benefits. Want to strengthen sales, inventory, and procurement management in your organization but not sure where to start? Let’s look at the wider procurement process and what can be done to craft an effective and compliant system.

There are a few key elements to designing a solid procurement strategy:

  • Understanding how procurement happens within your business today
  • Ensuring that you cover the main pillars of procurement
  • Adopting the right procurement models
  • Understanding how technology can help make procurement the best process in your company

How Does Procurement Look Today?

Developing a strong procurement strategy must begin with an understanding of how procurement happens within your company today. This requires a deep look at how goods and services are currently being procured, and where the related pain-points lie.

When you explore your current procurement operation, consider these questions:

  • What elements of the procurement process are unclear or confusing to employees?
  • At what stages of the procurement process is the flow bottlenecked?
  • What systems are involved in the different stages of procurement? Do these systems communicate?
  • Who uses and has access to each of these systems?
  • Is procurement-related information saved in a centralized location, or locally within employees’ individual folders?
  • How is procurement-related information that is stored in email or in files like Excel managed?
  • Who are the different team members involved in procurement?
  • What forms of communication are used with suppliers?
  • What systems are used for vendor onboarding?
  • What systems and forms of communication are used for vendor relationship management?
  • Where is vendor data saved? Who has access to this data?
  • Where is purchasing data saved? Who has access to this data?
  • At what stage in the procurement flow is the budget consulted? Are budgets always up-to-date?
  • Where is budget information saved? Who has access to this data?

Start with what you have and work from there to build improvements and make the entire system seamless from end to end.

The Pillars of Procurement

Procurement in general serves its role on both a national and local business scale. It promotes healthy and active economies while ensuring the best-performing vendors get the business they deserve. There are five pillars procurement relies on for this purpose. What you should look out for are:

  • Ethics.  Unethical practices and lack of transparency will damage the quality and value of the products and services being delivered.
  • Equity.  A fair and uniform procurement system ensures that all entities and industries have a chance to succeed.
  • Competition.  A vendor selection initiative free of bias enables a fair market where getting the best value for your money is possible.
  • Accountability.  Everyone involved deserves to be held accountable for a part of the process. We emphasize the importance of record keeping for this reason.
  • Value.  Don’t just go for the cheapest price. Compromising too much on quality reduces the value of your product or service you’re selling to clients.

Remember: you’re working not only for the profit margins and bottom line of the company but also a better market for all the players involved.

Starting with a Template Model

The fine details of procurement are the responsibility of your own business, as exactly how the system works varies from company to company. Firms can be small or large, be centralized or global, and run on different models accordingly.

  • The local model.  Decision-making is done at the departmental level in this model, with the idea that local departments have a better understanding of their local circumstances and can make decisions without bureaucratic resistance. At the same time, these teams miss out on the larger perspective and might not be held as accountable as a team on the centralized model.
  • The centralized model.  By contrast, this model has one department with complete control over procurement in a firm regardless of how many regional locations it might have. A centralized approach allows the overall budget to impact purchasing decisions everywhere and has a chance of ordering in bulk, opening the door for discounts. At the same time, the specific needs of local departments might go under the radar as a result.

There are strengths and weaknesses to both approaches, so it’s not uncommon to see a hybrid model, also known as “center-led procurement.” 

How Technology Helps

For many businesses, especially larger ones, procurement is no small headache. The processes are often lengthier than desired and sometimes result in the company spending more than it has budget for.

This stems from a few common scenarios:

  • The company’s Finance and Procurement teams are using separate systems that do not communicate. This results in relevant information being accessible only to certain relevant parties, which often slows down procurement processes and creates a misalignment between budgets and spending.
  • Communication about procurement processes between company employees happens in various ways (email, in person, Slack, etc.) that are difficult or impossible to track and manage efficiently.
  • Employees are unclear about the specific documentation they need to request from suppliers. This results in suppliers needing to endure a lengthier and more complicated process for collaborating with the business.
  • Budgets are visible only to a select few, and budgets are updated only after purchases are made. This results in organizations easily slipping into the cycle of spending over-budget.
  • There is no unified database with vendor information. Employees have no easy way to understand who the company’s preferred suppliers are. This results in multiple suppliers being used for the same service, and gets in the way of businesses consistently using suppliers who offer superior service at the best prices.

So what’s the solution?  Procurement software , also known as eProcurement, deploys electronic sensors and data analytics to predict patterns and forecast future procurement decisions. Procurement software has also extended its capabilities beyond data entry and bookkeeping. We’re seeing artificial intelligence, machine learning, and even blockchains enter the fray.

  • AI  can be used in the supply chain for demand planning and forecasting. Analyzing a large amount of data is fast, scalable, and easy.
  • Machine learning  can generate accurate predictions from that data to help plan out logistics, spending, and forecasting.
  • Blockchains  are a relatively new addition for recording transactions in a digital ledger and boosting traceability in the process.

We’re seeing all the steps involved in procurement like RFQ processing, workflow approvals, and supplier contract management become more streamlined thanks to automated software. Businesses are finding out that monitoring the supply chain, improving communication, and generating audits are easier through procurement software . Some bonus features to add to the mix are:

  • Integrations with current enterprise software like accounting applications and enterprise resource planners.
  • Mobile notifications for alerts whenever stock reaches reordering points
  • Automatic distribution of purchase orders, confirmations, and other documents.
  • User-friendly interfaces and dashboards for effortless administration and control.
  • Cloud-based offerings are making these programs more accessible to even smaller companies.

Suppliers especially see the advantage in bidding software. Reviewing requests for proposals and quotations and competitively bidding on each is a much more efficient way to handle communication.

Procurement software, an extension of Industry 4.0, is the new way of digitizing supply chain work to boost productivity beyond the manufacturing line. Automation and “smart” technologies have been at the forefront of reducing repetitive tasks so that professionals can focus on more important aspects of the business.

Where Your Future in Procurement Lies

Now that you have an understanding of what the practice of procurement encompasses, its many types, how it fits into the overall workflow of an organization, and ways to design and improve a procurement system, you are already better prepared for a smoother purchasing process than most.

By focusing on boosting performance, streamlining approvals, and controlling corporate spending, you will find that your product output quality goes up, customer satisfaction rises, and costs stay within budget.

With the growing trend in digitization, there are even more ways to streamline procurement. Not only can you develop new techniques to gain access to all the goods and services required to run your business, but you can also do so in a more precise and cost effective manner. Software ends up being an excellent solution for automating manual processes, reducing time spent and saving on costs.

What exactly is procurement?

Procurement in a business is the act of sourcing suppliers and purchasing goods or services from those suppliers. It can include negotiating and bidding, contract management, and business spend management. Approving the purchases employees are requesting to make takes a lot of management in and of itself, leading teams to implement procurement processes that include centralized and streamlined purchase order processes.

What is the difference between purchasing and procurement?

Procurement is part of the larger purchasing process. Procurement alone refers to the sourcing and acquiring of the goods and services organizations wish to purchase.

What is an example of procurement?

Any purchase that an organization makes to help support the business is procurement. An example of procurement is any physical good or product for an organization such as computers or supplies, or a subscription to a SaaS software, work management solution, etc.

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Procurement Models: An Explanation

  • Written by Rob Biedron
  • 14 min read

Procurement Models_ An Explanation

When it comes to procurement, there are many approaches to getting the products and services your organization needs to run smoothly. The strategy you deploy can greatly influence your bottom line and give you a competitive advantage. That’s why it’s important to understand the various procurement models that are available.

Using procurement models makes it easier to understand complicated and confusing concepts within procurement. These models make it easier to focus on your objectives and to simply communicate your strategies more effectively.

5 Basic Models

Under this model, all activity, decision making, and control is autonomous and done locally.

With this approach, procurement activity and decision-making is centralized. There may be local activity and controls beyond the scope of procurement, for instance, calling off Supply under a centrally negotiated contract.

With the networked procurement model, activity is coordinated across local units. Decision-making isn’t independent but remains controlled in some shape or form by various nodes on the network.

The federal model is a hybrid model of the central and local models. Some categories are controlled at the local level While others are centrally controlled. The use of the word “federal” indicates some kind of central governance. The autonomy at the local level can be determined either by mandate or mutual agreement usually from the center.

Centrally-Led Network

With this approach, activity is coordinated across all local units while control is exercised by nodes on the network. The center operates as the primary node.

Procurement Models According to the Next Level Purchasing Association (NLPA)

The dominick formula™ (2006).

With this procurement model, there is a way to score prices for comparison with a multiple criteria scorecard The formula is built on the principle that the penalty to a supplier’s pricing score should be proportionate to the degree that it’s price varies from the lowest qualified bid (LQB).

For instance, a criterion may be location with a maximum of 50 points. Evaluators may award 50 points if the supplier is located within 20 miles of your plant, 25 points if the supplier is located between 20 and 40 miles away, and zero points if the supplier is located more than 40 miles away.

If a supplier’s price is 25% higher than the QB, its pricing score should be 25% lower than the pricing score of the supplier submitted the LQB. If the supplier’s price is 40% higher, the pricing score should be 40% lower.

The Dominick Formula is: PS = MP x (1 – ((SP-LQB)/LQB))

  • PS = Pricing Score
  • MP = Maximum Points
  • SP = Supplier’s Price
  • LQB = Lowest Qualified Bid

The Procurement Funnel™ (2012)

With the Procurement Funnel approach, you have a graphic representation of how various factors influence your cost savings have on your bottom line. Procurement leaders can then focus on all the factors and metrics that can help a procurement team reach its cost savings potential.

At the top of the funnel working down, you have:

  • Total Spend
  • Spend Under Management
  • Addressed Spend Under Management
  • Negotiated Savings
  • Realized Savings

The Dominick Matrix™ (2013)

The Dominick Matrix is a procurement model that guides a procurement organization to choose one of four strategies for working with a supplier. The strategy you select depends on two factors:  the supplier’s materiality to your business and the supplier’s sophistication level. In terms of materiality you have a range from tactical to strategic and sophistication level ranges from unsophisticated to sophisticated.

You can use one of four approaches to work with suppliers. These are:

  • Supplier Collaboration: Working with decision-makers at a supplier to determine improvements that can have a miserable and positive financial impact for both organizations.
  • Supplier Development: Devoting some of your resources to a project that develops your suppliers capabilities or expertise beyond their current level
  • Supplier Management: Collecting metrics about a supplier’s performance for your organization then sharing those metrics with the supplier and implementing ways that the supplier can improve its performance based on those metrics.
  • Supplier Rationalization: Reducing the number of suppliers by consolidating purchases with fewer suppliers.
  • For sophisticated strategic suppliers, use supplier collaboration.
  • Use supplier development for unsophisticated yet strategic suppliers.
  • When working with tactical sophisticated suppliers, use supplier management.
  • And when working with unsophisticated tactical suppliers, use supplier rationalization

SPSM-BOK Mastery Model®  (2014)

The Strategic Procurement and Supply Management Body of Knowledge (SPSM-BOK), refers to a collection of authoritative educational materials as well as documented best practices. These materials represent the required competencies for excellence in procurement.

The Mastery Model is a four-level roadmap to developing those competencies. It’s designed to improve results from your procurement department.

Each level contains four to six competencies, each building upon the previous knowledge. The levels are as follows:

Level 1: Essential Procurement Skills

  • Tactical Purchasing
  • Analysis and Spreadsheets
  • Contract Law
  • Negotiation
  • Purchasing Best Practices

Level 2: Global Procurement Management

  • Purchasing Management
  • Project Management
  • Basic Global Buying
  • Advanced Global Buying

Level 3: Enterprise-Wide Procurement Influence

  • Basic Finance
  • Advanced Finance
  • Inventory Management
  • Supply Chain Quality

Level 4: External Procurement Influence

  • Social Responsibility
  • Supply Chain Sustainability
  • Supplier Diversity
  • Executive Leadership

Individuals in the procurement profession can use this to plan their career development. Procurement leaders can use this to plan competencies they want each team member to develop. Procurement leaders can also use this model to develop a competency-based organizational hierarchy.

The Continuous Strategic Supplier Evaluation Cycle™ (2015)

This procurement model assumes that just because a supplier relationship is perfect in the beginning doesn’t mean that it will remain so forever. The continuous strategic supplier evaluation cycle begins by moving from unstructured buying to strategic sourcing to supplier relationship management. The cycle should continue with a point of supplier re-evaluation.

At this point in time, you must determine if a strategic supplier’s goods or services are something you need anymore. If you find they aren’t, you’ll move to supplier disengagement. If you find that the goods and services are needed then you can use a variety of questions to determine if the supplier is worth keeping which takes you back to the supplier relationship management phase or not worth keeping which leads you back to the strategic sourcing phase.

The goal with this procurement model is to ensure you have the optimal supplier for both current and future circumstances. It is up to you to determine the supplier reevaluation point and frequency.

Dominick’s Sourcing See-Saw™ (2015)

It’s rare to come across a situation where both buyer and supplier have equal leverage in a negotiation or sourcing project. Leverage is largely determined by the supplies market conditions. Dominic’s sourcing seesaw is a procurement model that aims to help procurement professionals easily assess where the balance of power lies in any particular sourcing project.

As a buyer, when you have more leverage than a supplier, you can rely on aggressive negotiation tactics. Threatening to purchase products or services from another supplier is an effective tactic in this situation but if the supplier has more leverage it won’t work that well.

You must use different sourcing and negotiation strategies based on the current supply market conditions. You can access those conditions with the sourcing seesaw. Doing so helps you determine whether you as the buyer have more leverage or if the supplier has more leverage.

Questions to ask include:

  • Is the availability of capable suppliers high? Medium? Low?
  • Is the accessibility of pricing information high? Medium? Low?
  • Is the availability of alternative products or Services high, medium, or low?
  • Do you have high, medium, or low Prestige of the customer to suppliers?
  • Is your organization’s Financial Health high, medium, or low?
  • Do you have a high, medium, or low organizational spend on the product or service?
  • Is the cost for new suppliers to enter the market high, medium, or low?
  • Is it difficult for a supplier to establish sales channels? How difficult is it?
  • Is current growth in the market high, medium, or low?
  • How cost effective is it for the buying organization to switch suppliers?
  • Is the differentiation of a supplier’s product or service high, medium, or low?
To take advantage of procurement solutions designed to give your company a competitive edge, procurement functions should focus on creating value added contracts with strategic business partners.

Preparing for Next-Gen Procurement

To remain current and competitive, your procurement function has to navigate new markets and sources of supply while balancing the benefits of global sourcing and standardization against risks associated with Logistics and then need to tailor supply chains to the requirements of the local market.

It’s crucial to develop and coordinate a set of capabilities that use technological advances, management, and analytics. This next-generation procurement operating model restructures procurement’s relationship with its internal customers and supply base. Interconnections between the various activities required to drive value across the entire  purchase to pay cycle is critical.

The Right Procurement Operating Model

Perhaps the blessing and the curse of procurement is that there is no one-size-fits-all approach. It adds to the complexity of the entire purchase to pay process, but changes in strategy are what give you the advantage over your competition.

Ultimately, your procurement operating model has to start with an understanding of your overall business strategy and align your procurement practices with those desired outcomes. For instance, if your organization is in growth mode, your procurement strategy needs to emphasize supplier Innovation, development, and management. If on the other hand, your organization is focusing efforts on profitability, more attention needs to be directed to traditional sourcing activities that reduce the cost of supply.

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Procurement in Business: Meaning, How it Works, & Best Practices

Home » What is Supply Chain Management? » How Procurement Works in Business

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Procurement is a critical part of supply chain management . Regardless of the size of your company, applying discipline to the process by which you acquire goods and services directly improves your bottom line.

Good procurement practices also allow you to monitor the quality of the materials you buy and apply your company strategy and principles in what is often the biggest expenditure on your books.

This guide explores the role of procurement in business. We’ll uncover the best practices and key processes that will help you plan, purchase, and audit your company’s goods and services.

What is procurement in business?

Procurement is the process of sourcing and purchasing goods and services  for use in a business. It includes the purchasing process – from issuing a purchasing order request through to invoice payment – along with the surrounding planning, strategy, and procedures that enable a company to meet the demands of consumers.

Procurement meaning

In business, the term ‘procurement’ refers to the sourcing and acquisition of goods or services from the perspective of the buyer. (From the perspective of the vendor, the same activity is a sale.) Procurement can also refer to a contractual obligation made to ensure that something gets done.

procurement

Direct procurement vs indirect procurement

Goods and services procurement can be split into two categories, direct and indirect procurement.

Here’s the difference:

Direct procurement: The process of buying raw materials, components and parts used in the production of finished goods . Or, for a merchandising company such as a wholesaler or retailer, direct procurement is purchasing finished goods for on-sale.

Indirect procurement: The process of buying materials indirectly used for the production or sale of goods and services – for example, the electricity used by a manufacturer or uniforms purchased by a grocery chain.

Direct and indirect procurement are often handled by different departments in a firm. A procurement manager is typically responsible for the direct procurement budget.

What’s the difference between purchasing and procurement?

The main difference between purchasing and procurement is that procurement is strategic, while purchasing is practical. Procurement encompasses all of the functions of purchasing, but also wraps around the broader policy and strategy.

Procurement involves pre-purchasing activities such as research, negotiation and planning – and can include functions such as supplier quality management, risk management, and reporting. Purchasing meanwhile focuses on the purchasing process, including raising purchase orders , receipting goods and services and authorising payment.

Procurement processes in modern business

Here’s a quick break down of the various procurement processes and workflows typically implemented in modern businesses.

Common procurement processes in business:

Demand forecasting : Estimating the number of products or services your customers will purchase in a future period with the aid of historical sales data, market research, and seasonal trends.

Inventory planning : Determining the optimal volume of inventory for each of your stocked items based on meeting predicted consumer demand.

Vendor procurement : Identifying vendors, submitting an RFQ (request for quote), and comparing pricing and terms to find the best deal.

Purchase requisitioning : Placing a formal (internal) request to place an order that must be approved before making a purchase.

Purchasing : Creating and delivering a purchase order to your selected vendor.

Contract management : Negotiating supplier relationship terms and conditions.

Order management : Managing customer orders from order placement through to fulfilment, shipping, and tracking.

Invoice processing and approval : Confirming and paying invoices issued for any goods or services purchased.

Record keeping : Keeping a reliable record of all documents and transactions for future audits and other accounting purposes.

Why procurement in supply chain management is so important

Regardless of the size of your business there are benefits to having a sound procurement process – and risks to doing it wrong. Here are five of the biggest advantages of establishing an effective procurement process.

1. Cost control

procurement business model

Raw materials, components, and stock – along with labour costs – are likely to be some of the largest expenses in your company.

An effective procurement strategy will ensure you seek out the lowest price for equivalent goods and services – and review those purchasing decisions regularly to ensure your direct materials costs remain low. It can also help you to reduce lead times through better supplier communcations.

2. Inventory management optimisation

Bulk purchases typically reduce the cost of acquiring goods. However, efficient procurement processes balance the cost of goods purchased with optimised inventory management .

When goods and services procurement is aligned with your inventory control, it can help you to avoid costly inefficiencies associated with holding too much stock, unwelcome stockouts, and dead inventory.

3. Improved quality control

Another consideration that must be balanced against the unit price paid is the quality of goods purchased. An efficient procurement process can enforce quality control measures during the purchase process.

Procurement within the construction industry, for example, can create discipline around proper certification of steel strength.

4. Supplier contract terms and conditions

Setting the right terms and conditions for your needs is an unglamourous but important part of any strategic procurement process.

More than just explaining your payment terms, your supplier contracts should set out specifications for the goods to be supplied, warranty periods for any defective goods received, confidentiality and intellectual property details, and termination clauses.

5. Better business planning and strategy

A well-functioning procurement system works hand-in-hand with forward planning. For example, a new product launch can only proceed if the right components are secured ahead of time. And a price point for the new product can only be set by sales and marketing once the cost of materials is known.

Similarly, a cost-effective product business must avoid production halts and stock outs, both of which require the support of smooth and responsive procurement.

procurement business model

How it works: The procurement process explained

The procurement process begins with determining a company’s requirements – a step known as Needs Recognition. This involves identifying which goods and services must be acquired to meet the company’s business objectives.

Once a need has been determined, it is actioned through the creation of a detailed document called a purchase requisition. This document typically contains specifications such as the date goods and services are needed by and key product details.

procurement process

A purchase requisition is either approved or denied by the procurement team. If approved, the next step in the process is to source and compare suppliers to find the best quote. In some cases a vendor will be found prior to a requisition being placed, and may be included on the document.

Finally, a purchase order will be issued to the chosen vendor. This acts as a legal document confirming the intended purchase of the required goods or services.

The supplier will confirm the purchase order before sending the buying company an invoice and fulfilling the request.

The procure to pay cycle

A term often used in the context of procurement is ‘procure to pay’ – or the  procure to pay (P2P) cycle . This refers to the full lifecycle of procurement broken down into steps, and recreated as functions within a technology package.

The exact details of the procure to pay cycle vary according to which software vendor you speak to.

One of the most complete lists is provided by  software platform G2 , which names the P2P stages as:

Identification of requirement

Authorisation of purchase request

Approval of purchase request

Procurement

Identification of suppliers

Inquiries/receipt of the quotation

Negotiation

Selection of the vendor

Purchase order acknowledgement

Advance shipment notice

Goods receipt

Invoice recording

Three-way match

Payment to supplier

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5 essential procurement best practices

Because procurement is a multifaceted operation that impacts all areas of a company, the procurement strategy you use – and how it’s executed – directly affects your business’ bottom line.

Here are five practical procurement best practices to help you get the most out of your efforts.

1. Automate the procurement cycle

Utilise procurement automation software to streamline manual tasks such as data entry, purchase order creation, and invoice payment.

Automating your procurement cycle can boost productivity and improve overall efficiency across the business. It also enables you to reduce your procurement and purchasing costs , improving profitability.

2. Develop healthy supplier relationships

Supplier management is a critical aspect of any effective procurement strategy.

Focus on improving your supplier relationships by:

Integrating software systems and sharing important data

Establishing clear communication methods

Collaborating to develop a procurement cycle that’s beneficial to both parties

Improving visibility across the supply chain

Procurement teams can also work together to share opportunities and negotiate better deals from mutual suppliers.

3. Establish better supply chain visibility

Map your supply chain and prioritise clear supplier communication to establish better supply chain visibility so that you can quickly respond to any demand changes or supply disruptions. Integrating data using cloud-based supply chain software will give your suppliers visibility across your replenishment needs, further streamlining the procurement process .

4. Optimise your inventory management

Inventory optimisation is the process of boosting inventory management efficiency by implementing cost-effective practices for acquiring the ideal quantities of inventory for each of your products.

Accurate demand forecasting is at the heart of successful inventory optimisation. This can be achieved by using the right tools and data to correctly predict upcoming inventory requirements. Other ways to optimise your inventory management include storage space optimisation, stock control automation, and safety stock.

5. Regularly audit and improve your procurement strategy

As your business grows, so too should your procurement processes.

Break your current direct and indirect procurement methods on an ongoing basis. Look for any bottlenecks or inefficient practices that are preventing you from achieving a cost-effective procurement process and try to resolve them as quickly as you can.

procurement best practices

Procurement management and procurement managers

Procurement management is the task of overseeing all tasks involved in procuring goods and services for a company, from the competitive bidding process to contract management and invoice payments.

While larger organisations will have a procurement department with several staff, many small firms will run their procurement out of accounts payable, with responsibility for purchasing bundled into one or two other positions.

However as a business matures the need for a dedicated procurement manager typically grows. Here are some of the key responsibilities, skills, and attributes required of modern procurement managers.

Procurement managers – the scope of the role

A procurement manager is responsible for all purchasing and procurement activities, and oversees a firm’s ‘spend under management’ – a term for the funds that a business uses to acquire goods and services.

A procurement manager can be tasked with:

Ensuring security of supply for the company

Optimising the use of funds under management

Predicting, managing, and mitigating risk in the supply chain

Building relationships with potential suppliers and partners

Maintaining a company’s approved supplier list

Managing any tender processes within the company, and preparing documents such as Requests For Proposals (RFPs) and Requests For Quotation (RFQ)

Evaluating multiple offers from suppliers and selecting a winner

Negotiating and preparing contract documentation

Supplier quality management – evaluating the performance of existing suppliers and enforcing compliance

Setting policies and guidelines for procurement within the company

Hiring and training procurement staff

Ensuring any technology platforms used for procurement are sufficient for the company’s needs

Monitoring procurement KPIs and lifting performance

Reporting to key stakeholders

Traits of a good procurement manager

Naturally these responsibilities will vary with the size and complexity of the firm. However given the potential complexity of the role, procurement managers need a versatile set of skills.

Good procurement managers:

Are fiscally responsible and detail oriented

Possess solid negotiation skills

Communicate well with diverse stakeholders, both internal and external

Have a service mindset towards their own company

Can think strategically

procurement business model

Procurement software versus purchasing software

For businesses looking to streamline their procurement with a software solution, the distinction between procurement and purchasing is important – as the two terms are used for two different types of technology.

Procurement software

Procurement software is generally used by large and complex organisations. It aims to streamline and improve the full procure to pay cycle. Well-known procurement software solutions include cloud-based apps like Procurify, Kissflow, and NetSuite .

Purchasing software

Purchasing software , on the other hand, handles only a subset of the P2P cycle. Generally the term purchasing software is used for any solution that lets a business raise a purchase order, receipt goods and process payments.

Unleashed, for example, falls into this category: as part of its core inventory management functions it allows for streamlined purchase order creation , receipting of goods (and reconciliation with live stock-on-hand info), as well as financial reconciliation via its integration with payments and accounting platforms like Xero and QuickBooks.

Another term used for these business functions is  purchase order management .

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Procurement software vs purchasing software: which is right for me.

There are considerable benefits to automating your procurement – whether you intend to digitise the full procure to pay cycle, or simply smooth out your purchase order management. Compliance, oversight and efficiency can all be dramatically improved, lifting your company’s overall supply chain management in the process.

However the choice between a full procurement system versus a simpler purchasing solution will depend on the particulars of your own organisation.

For larger firms the extra cost of a full procurement solution is easily justified by the ability for diverse departments to request materials – and have their needs met quickly by a global procurement department. Procurement software makes a centralised strategy around  materials management  possible, and helps ensure capital is used efficiently in what is for many firms the main area of expenditure.

For many growing small or medium enterprises however, the flexibility cloud-based purchasing software offers is preferred – as is its affordability.

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Streamline your procurement process with business process model diagrams: a step-by-step guide.

Streamlining your procurement process is essential for any business looking to optimize efficiency and reduce costs. One powerful tool that can help you achieve this goal is a Business Process Model Diagram. By visually mapping out the steps involved in your procurement process , you can identify bottlenecks, streamline workflows, and improve overall productivity. In this step-by-step guide, we will explore what business process model diagrams are, how they can benefit your procurement process , and provide you with practical tips on creating your own diagram. So grab a cup of coffee and let’s dive into the world of streamlined procurement!

What is a business process model diagram?

A business process model diagram is a visual representation of the steps, activities, and interactions involved in a specific business process. It provides a clear and structured overview of how different elements within the process relate to each other. Think of it as a roadmap that guides you through the various stages of your procurement journey .

These diagrams typically use standardized symbols and notation to represent different components such as tasks, decisions, inputs, outputs, and flow control. By using this graphical representation, complex processes can be simplified and easily understood by stakeholders at all levels.

The main purpose of creating a business process model diagram is to gain clarity on how your procurement process functions from start to finish. It allows you to identify potential inefficiencies or areas for improvement . For example, you may discover redundant steps or unnecessary handoffs that can be eliminated or streamlined.

Moreover, these diagrams serve as valuable communication tools between team members and departments. They provide a common language for discussing processes and enable everyone involved to have a shared understanding of how things should work. This promotes collaboration and helps avoid misunderstandings or miscommunications along the way.

Business process model diagrams are powerful tools that visually depict your procurement process in an organized manner. They offer clarity on workflows while facilitating effective communication among team members. Now let’s explore how these diagrams can streamline your procurement process !

How can business process model diagrams help streamline your procurement process?

Business process model diagrams can be a game-changer when it comes to streamlining your procurement process. These visual representations provide a clear and systematic view of the various steps involved in procuring goods or services for your business. By mapping out the entire process , you can identify bottlenecks, inefficiencies, and areas that require improvement.

One way business process model diagrams help streamline procurement is by highlighting redundancies or unnecessary steps. By visually representing each stage, you can easily identify areas where tasks overlap or duplicate efforts. This allows you to eliminate these redundancies and create a more efficient workflow .

Another benefit of using business process model diagrams is that they help standardize procedures across different departments or teams involved in procurement. By clearly outlining each step, everyone involved has a shared understanding of how the process should be executed. This reduces confusion and ensures consistency throughout the organization.

Additionally, business process model diagrams enable you to identify potential risks and mitigate them proactively. By mapping out the entire procurement journey from requisition to payment , you can assess potential points of failure or delays. This allows you to implement measures to mitigate these risks beforehand and ensure smooth operations .

Furthermore, these visual representations make it easier for stakeholders to understand and contribute to the procurement process . Whether it’s department heads, executives, or external suppliers/vendors, having a clear diagram helps everyone visualize their role within the bigger picture.

Leveraging business process model diagrams is an effective way to streamline your procurement processes. They provide clarity on each step involved in procuring goods/services while also identifying opportunities for optimization and risk mitigation along the way.

What are the benefits of using business process model diagrams?

Benefits of Using Business Process Model Diagrams

Improved Clarity and Understanding One of the key benefits of using business process model diagrams is that they provide a visual representation of complex procurement processes. These diagrams help to simplify and clarify the steps involved, making it easier for everyone involved in the process to understand how different tasks are interconnected.

Enhanced Communication and Collaboration Business process model diagrams serve as a common language that can be easily understood by various stakeholders within an organization. By having a standardized visual representation, teams can communicate more effectively, ensuring that everyone is on the same page when it comes to carrying out procurement activities .

Increased Efficiency and Productivity By mapping out each step in a procurement process through business process model diagrams , organizations can identify potential bottlenecks or inefficiencies. This allows them to streamline their procedures, eliminate unnecessary steps, and optimize the overall workflow . As a result, efficiency and productivity levels are improved .

Effective Risk Management Procurement involves risks such as delays in delivery or quality issues with suppliers. Business process model diagrams enable organizations to identify potential risks at different stages of the procurement cycle. This helps them develop appropriate risk management strategies to mitigate any negative impact on their operations.

Continuous Improvement Opportunities Business process model diagrams not only assist in streamlining current processes but also provide insights into areas where improvements can be made over time. By analyzing these models regularly, organizations can identify opportunities for optimization and implement changes that lead to ongoing enhancements in their procurement practices.

Utilizing business process model diagrams offers numerous advantages for streamlining your procurement processes. They enhance clarity, facilitate communication among teams, boost efficiency and productivity while enabling effective risk management . Moreover, these diagrams act as valuable tools for identifying continuous improvement opportunities within your organization’s procurement function.

How to create a business process model diagram?

Creating a business process model diagram is a crucial step in streamlining your procurement process. It helps you visualize and understand the different steps involved , identify potential bottlenecks or inefficiencies, and find opportunities for improvement. Here’s a step-by-step guide on how to create a business process model diagram:

1. Identify the key processes: Start by identifying the main procurement processes within your organization. This could include sourcing suppliers, issuing purchase orders , receiving goods, and making payments.

2. Map out the steps: Once you have identified the processes, map out each step involved in detail. Use clear and concise language to describe each action or decision point.

3. Determine inputs and outputs: For each step, determine what inputs are required and what outputs are generated. This will help you understand dependencies between different steps and ensure smooth flow of information.

4. Define roles and responsibilities: Clearly define who is responsible for each step in the procurement process . This will help eliminate confusion or duplication of effort.

5. Use symbols and notation: To make your diagram more visual, use standard symbols and notation to represent different actions or decisions points.

Validate with stakeholders: Once you have created your business process model diagram, validate it with key stakeholders involved in the procurement process .

Remember that creating a business process model diagram is an iterative process – be open to feedback from others who may offer valuable insights into improving efficiency!

By following these steps,you can create an effective business process model diagram that accurately reflects your organization’s procurement processes.

This visualization will not only streamline your operations but also serve as a reference tool for training new employees.

It’s time to take control of your procurement !

In today’s fast-paced business environment, streamlining your procurement process is essential for staying competitive. One powerful tool that can help you achieve this is the use of business process model diagrams. These diagrams provide a visual representation of your procurement process , making it easier to understand, analyze, and optimize.

By utilizing business process model diagrams in your procurement operations, you can benefit from increased efficiency and effectiveness. The clarity provided by these diagrams allows for better communication and collaboration among team members involved in the procurement process . This leads to improved decision-making and faster resolution of any issues or bottlenecks.

Additionally, business process model diagrams enable you to identify areas where improvements can be made. By analyzing the steps in your procurement process visually , you can pinpoint inefficiencies or redundant tasks that may be slowing down the overall workflow. With this knowledge at hand, you can make informed decisions on how to streamline and optimize your procurement operations .

Creating a business process model diagram doesn’t have to be complicated. Start by identifying the key steps in your current procurement process and map them out using flowchart symbols such as rectangles for activities, diamonds for decisions points, arrows for flows between activities or decisions, etc. Use clear labels to describe each step or decision point so that it is easily understandable by anyone reviewing the diagram.

Remember that a business process model diagram should not only capture the existing state but also serve as a foundation for continuous improvement efforts. Regularly review and update your diagram as processes evolve or new improvements are implemented .

In conclusion (without explicitly saying “in conclusion”), integrating business process model diagrams into your procurement practices can bring significant benefits – from enhanced communication and collaboration to streamlined workflows and optimized operations. So why not leverage this powerful tool today? Take control of your procurement processes with well-designed models that pave the way towards greater efficiency and success!

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Start » strategy, 9 steps to creating a procurement process for your small business.

An effective procurement strategy is the foundation for implementation success. Learn how to plan your approach, choose the right technologies, and find suitable suppliers.

 A small business owner checks a delivery. Before her is an open box. She is holding the shipping invoice in her right hand and comparing it against the goods delivered.

Disruptions, shortages, and out-of-stock situations impact your uptime and ability to meet customer expectations. Indeed, in the second quarter of 2023, supply chain issues remained a top concern for 23% of small business owners, according to the MetLife and U.S. Chamber Small Business Index . A procurement strategy increases supply chain visibility and resiliency while reducing your financial and operational risks.

In addition, a purposeful approach to procurement can save your company money and bolster relationships with suppliers. Follow this step-by-step guide to develop a procurement process suitable for your business goals and needs.

1. Assess your needs, goals, and budget

Procurement cycles differ by company; small and medium businesses (SMBs) should refrain from trying to create a one-size-fits-all plan. Instead, complete an internal review to learn what goods and services each department requires. Categorize these as direct (raw materials or services for production) or indirect (supports business activities). Then, break them into goods or services. Remember to include pricing and quantities to understand the spend for each group.

This step aims to see how much your business spends on direct and indirect goods and services. These figures will give you an idea of how procurement can benefit your company and how a strategy can help you overcome supply chain challenges .

[ Read more: 6 Ways to Protect Your Business From a Supply Chain Disruption ]

2. Establish metrics to measure your procurement performance

Procurement key performance indicators (KPIs) track your company’s efficiency and process goals. Monitoring metrics increases visibility into your supply chain and shows where you’re improving or need further action. You should set small business KPIs before beginning any new process.

Consider tracking the following metrics:

  • Rate of emergency purchases.
  • Procurement return on investment (ROI) and benefits.
  • Supplier defect rate.
  • Purchase order (PO) and invoice accuracy.
  • Compliance rate.
  • Supplier lead time.
  • Vendor availability.
  • PO cycle time.
  • Cost per invoice and PO.
  • Procurement ROI and benefits.
  • Spend under management.
  • Price competitiveness.

[ Read more: Big Brands’ Inventory Management Partners Share Top Tips to Slay Supply Chain Snarls ]

3. Consider current and new procurement technologies

Capterra stated, “Nearly 30% of SMBs plan to implement a new supply chain management tool in 2023.” Moreover, MHI predicts that “digital supply chains will be the norm” by 2033.

Although companies can choose an all-in-one procure-to-pay suite, Capterra found that many organizations opt for specialized tools. Niche programs are easier to use, integrate, and deploy.

See if your current software supports your procurement process, and while planning your strategy, look for opportunities to automate tasks using supply chain tech . Doing so can decrease errors and save time, allowing your procurement team to focus on high-value activities instead of data entry.

Procurement software solutions fall into the following categories (and several tools cover multiple areas):

  • Accounts payable and spend analysis: This software helps companies understand the procurement process and find cost-saving opportunities. Solutions include Coupa , SAP Ariba , Precoro , and PRM360 .
  • Procure to pay: These end-to-end platforms centralize many procurement activities. Consider solutions like mjPRO , Procurify , Precoro , Basware , and MHC Software .
  • Purchasing: Automate your approval workflows and view real-time spend data with SAP S/4HANA Cloud , Emburse Certify Expense , Spendwise , Veeqo , Unleashed , Planergy , Teampay , and Order.co .
  • Request for proposal (RFP): Create a central database for your procurement documents and use artificial intelligence (AI) tools to improve your workflows. Software solutions include Responsive (formerly RFPIO), Loopio , Avnio Response Cloud , RFP360 , QorusDocs , and RocketDocs .
  • Spend management: Manage your expenses automatically and visualize your costs with software like BILL Spend & Expense (Formerly Divvy), Ramp , Brex , Airbase , and Spendesk .
  • Strategic sourcing: Automate your sourcing and procurement process with software such as aPriori , Procol , and Anvyl .
  • Vendor management: Review, track, and manage suppliers with solutions from QuickBooks Online , Vanta , SAP Fieldglass , Venminder , Ncontracts , and Tradeshift Pay .

4. Find and evaluate suppliers

Identify vendors for each good, electronic component, service, raw material, or service your business requires. Obtain supply market intelligence using free resources from the U.S. Small Business Association and the U.S. Census Bureau . Also, consider paid services, such as IBIS World , Crain’s , Bloomberg , and Gartner . Consider each vendor’s cost structure, market information, past performance, and commodity profile.

This prescreening process is enough to move to the next stage for some services and goods (office supplies or standard maintenance items like grease). However, you should further evaluate complex parts and essential production components when the products substantially impact your budget and production capacity. The more risk that’s involved, the more time you should dedicate to the vetting process.

Consider criteria such as the following:

  • Location: Review the geographic stability, distance from your company, and supply chain infrastructure.
  • Cultural and language differences: Determine if barriers will cause communication issues during the process.
  • Working conditions: Focus on health and safety practices, child labor usage, and general working conditions.
  • Employee capabilities: See if there is a history of labor disputes or strikes, the turnover rate, and the workforce skill level.
  • Cost structure: Go over the total costs, including production, marketing, material, administrative, and supply chain expenses.
  • Technological capabilities: Consider the company’s approach to technology in design, equipment, processes, methods, and any current or future investments in research and development.
  • Quality control: Look at what system they use and record to ensure consistency for current and anticipated demand.

In the second quarter of 2023, supply chain issues remained a top concern for 23% of small business owners, according to the MetLife and U.S. Chamber Small Business Index.

5. Choose a sourcing strategy

After approving a purchase, your procurement team must select a supplier and either buy directly from them, send an RFP or a request for quote (RFQ), or enter into an agreement.

An RFP solicits bids from suppliers. It should outline your project and provide delivery requirements, financial terms, pricing structure, and product or service details. Alternatively, a company uses an RFQ when they only need a price quote, not information about products or services.

[ Read more: Do You Have a Supply Chain Backup Plan? How to Plan Ahead ]

6. Select suppliers and negotiate

Once you review the documents and choose a supplier, it’s time to negotiate vendor contracts . The agreement should outline the scope of work, delivery dates, budget, contract duration, legalities, terms, and conditions.

It’s important to remember that, ideally, you’re building a long-term relationship. You need to get the best deal possible. At the same time, compromise is part of negotiation.

7. Finalize documents and keep records

The onboarding process begins immediately after signing and approving the contract. Larger organizations often require individuals to complete a purchase requisition (PR). This form requests the procured goods or services and requires approval from an internal department manager or leader.

From there, the business creates a purchase order (PO). This document goes to the supplier and details the services or goods and negotiated terms and conditions.

Small businesses should keep all records on file, whether those records are paper files or digital forms. Doing so helps show your overall ROI and can support you when negotiating future vendor payment terms . Moreover, it’s essential for business tax and audit purposes.

Store the following documents:

  • Supplier invoices.
  • Delivery reports.
  • Company policies.
  • Purchase orders.
  • Packing lists.
  • RFPs and RFQs.
  • Procurement budget approvals.
  • Goods received note.

8. Inspect shipments and pay suppliers

Check out your first shipment to ensure everything is in good condition and in the correct quantity. Also, note if the supplier met the delivery schedule and satisfied the services outlined in the contract. If you have any concerns, contact the vendor for a meeting. Otherwise, you can go over the invoice for payment.

Companies often use the three-way matching method. It compares the purchase order, invoice, and itemized list for accuracy. From there (depending on your payment terms), your financial department will process the payment and send it to the supplier.

9. Review and adjust your procurement strategy

All business strategies are living documents. Nothing, including contracts, is set in stone.

Your procurement KPIs will highlight opportunities for improvement and areas where you could save money by adjusting your process or negotiating better contract terms. Likewise, you may realize inefficient processes are driving up administrative costs. In this case, automated spend management software or vendor management tools can boost productivity while reducing errors and ensuring policy compliance.

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  • Using Procurement

Procurement Business Process Models

Understanding the Oracle Fusion Business Process Model (BPM) is essential. BPM informs the deployment, upgrade, integration, and configuration of the product.

Oracle Fusion documentation follows the process models very closely. Roles Based Access security is also tied closed to the BPMl, so that tasks and activities are assigned appropriately. Messaging and online help are arranged by BPM. Field support uses the BPM to organize their efforts to examine and resolve issues.

This figure illustrates the five levels of the Business Process Model: Level zero (L0) - Task: A specific industry organized around raising capital, executing a business model, and reporting the resultant income to shareholders. Level one (L1) - Business Process Area Level 1: A specific business process area. Level two (L2) - Business Process Level 2: A specific business process. Level three (L3) - Activity: A specific activity. Level four (L4) - Task: A specific task involved in an activity.

The standard business process model has five levels: L0 through L4.

An example of a level 1 business process area that crosses all industries is Oracle Fusion Cloud Procurement. Procurement employs level 2 business processes and level 3 activities to track the major functional and setup components and tasks. This table lists some of these important business processes and their respective activities.

Related Topics

  • Overview of Procurement Business Process Model

Reimagining engineering to deliver more projects, more efficiently

Build, build, build. That’s the order of the day to meet the world’s urgent demand for everything from battery factories and renewable-energy projects to energy-efficient work, housing, and transportation infrastructure. The energy transition alone requires an estimated $9.2 trillion in annual investment between now and 2050, with around $6.5 trillion projected for low-emission assets. 1 For more, see “ The net-zero transition: What it would cost, what it could bring ,” McKinsey Global Institute, January 2022.

Is the engineering sector up to the task? If past performance is any indicator, not likely. Research confirms the widespread perception that capital projects consistently overrun on cost and schedule. 2 “ Capital investment is about to surge: Are your operations ready? ” McKinsey, April 7, 2022. Yet to achieve near-term climate commitments, for example, renewable-energy generation capacity would need to come to market at nearly triple the current rate—meaning that more than 520 gigawatts of solar and wind power would need to be installed annually during the current decade. 3 “ The energy transition: A region-by-region agenda for near-term action ,” McKinsey, December 15, 2022.

This is not a gap the world can afford in terms of time, money, or emissions.

Delivery challenges are compounded by a shortage of engineering talent. Just in the United States, there were about 400,000 vacancies in the architecture, engineering, and construction sector as of late 2023, while in the United Kingdom, vacancies in the sector have risen by about 50 percent since 2019. 4 NAICS 23, US Bureau of Labor Statistics, November 2023; UK Job Vacancies (thousand): UK Office for National Statistics, January 2024; Jose Luis Blanco, David Rockhill, Aditya Sanghvi, and Alberto Torres, “ From start-up to scale-up: Accelerating growth in construction technology ,” McKinsey, May 3, 2023.

Despite the urgency, the engineering sector is up against a traditional business model that does not incentivize the level of transformation required. The usual compensation structure is based on hours and rates—therefore, inputs: the more inputs, the more revenue and margin. To achieve a step change in performance, incentives for both engineering and asset owners would need to realign around shared incentives and shared risk and reward.

This article explores seven disruptive features—and potential incentives to unlock a reimagined business model—that together could transform the sector, and its ability to create the built environment of the future.

A sector ripe for disruption

Despite the availability of some of the most cutting-edge digital tools since the 1980s, engineering remains largely unchanged in the way it works. Most projects are still organized by discipline (for example, civil, mechanical, and electrical), and inefficient work processes create an enormous amount of paperwork—even when digitized.

Agile software engineering at a glance

Inspired by agile software development, the engineering sector could deliver optimized assets that are digitally native and ready for production—and with guarantees of success. Unlike traditional, linear ways of working, agile approaches are iterative and build in more opportunities for testing, learning, and adapting along the developmental path.

There are multiple parallels between agile software development and the engineering, procurement, and construction sector:

  • Redefining the product to provide just enough documentation to support a handover
  • Initiating pull requests to accelerate delivery and merge information sources to all individuals or teams
  • Deploying incentives to encourage product managers to take product ownership and collaborate across disciplines to deliver the full product
  • Having a single source of truth to attain agreement on sub-units and APIs by allowing continuous parallel updates
  • Harnessing agile development with rapid iteration cycles and integration with AI tools at any level, as well as global automated updates to changing design requirements
  • Using automated testing of the full product with every iterative design update
  • Making non-IP parts of the workflow management system available for the global community through open sourcing

However, seven disruptive features are emerging in the engineering sector, largely driven by fast-moving changes in software engineering (see sidebar: “Agile software engineering at a glance”):

  • Redefining the “product”
  • Switching from push to pull workflows
  • Switching from a discipline focus to a cross-functional focus
  • Creating a single (real-time) source of truth

These first four changes have produced time and cost savings of anywhere between 30 and 50 percent, significantly improving quality and “first time right” metrics, as well as leading to construction productivity further downstream. To speed up the performance transformation needed, engineering could also leverage three disruptive features:

  • Using AI-enabled design automation
  • Applying continuous integration and automated testing
  • Adopting open sourcing

While engineering firms (and teams within larger organizations) are beginning to experiment with these changes —with encouraging results—an organization is yet to emerge who has brought together all seven facets. Combining them could truly disrupt engineering as we know it.

One: Redefining the “product”

The first, crucial disruptive feature is reframing the “product” that engineering provides. Currently, engineering produces drawings, which inform cost and schedule estimates for investments and instruct construction on what must be built. Traditionally, the different engineering disciplines have little awareness, incentive, or practice of looking at the ultimate product that is being engineered.

Placing the (real) customer of engineering outputs at the center of the profession could help to reframe the product delivered. This “customer” is actually the construction (ability to deliver the asset in right sequence on schedule), and ultimately the asset owner (NPV).

In this reimagined approach, the engineering product becomes the construction-ready drawings for all elements involved, in the exact sequence and at the required volume and quality, to enable execution of the instructions.

This approach could be incentivized in different ways. Increasingly innovative contracting practices link engineering fees to outcomes “downstream”—for example, to the start of construction or to the net present value (NPV) the asset produces. The engineering team of a global transport sector manufacturer, meanwhile, was incentivized based on revenue generation from its newly completed production lines.

In the case of early engineering or front-end engineering design (FEED), the product is a robust business case that is attractive to investors. Engineering’s contribution in this vital early stage of the project delivery process would be a product that is viable enough to inform decisions on whether to take an investment decision, to continue to a detailed design (or not).

Two: Switching from push to pull workflows

Once the downstream customer and product are established—for example “construction” to start—a shift from push to pull workflows becomes possible.

In essence, this means prioritizing the engineering deliverables in line with what the downstream construction customer needs next to maximize throughput and asset completion for operation. Although this might seem obvious, we repeatedly observe a mismatch between engineering outputs and requirements of teams and work processes that follow. Aligning the two is not a new principle—famously, the Empire State Building was built in this way. More recently, Toyota made it the basis for optimizing its manufacturing process by reducing waste and inventory, while maximizing valuable throughput at its factories.

In this reimagined model for engineering—designed to create a major acceleration in project work—aligning engineering deliverables with construction needs and sequencing would unlock schedule and cost savings across all industries.

Three: Switching from a discipline focus to a cross-functional focus

Agile principles can accelerate the cycle times and product quality for software and physical products across industries and could be a game changer for engineering, too. The principles are intuitive if we focus on a product. They combine all the capabilities required to deliver a product (or an integrated unit of it), empower teams to make decisions on the delivery of the product or unit, and create a cadence that allows for speedy resolution and escalation when bottlenecks occur.

Composing teams in this way requires bringing together skills from all relevant engineering disciplines, as well as from commercial, construction, and procurement, and including key suppliers. The design process becomes robust for the customer (e.g., construction, asset operator) and the contributors because designs are geared toward the ultimate operations, availability of components and materials, and constructability.

One oil and gas supermajor piloted agile ways of working with its well-delivery team, including key suppliers. On the first try, it shortened the timeline for concept selection by 60 percent, reduced design development for a horizontal well to 13 weeks from 26, and saved 240 full-time equivalent (FTE) days (40 percent) in well planning. All of this was achieved while improving employee engagement scores and increasing empowerment scores by 30 percent.

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Four: creating a single (real-time) source of truth.

Currently, engineering workflows are mainly executed in siloed use of PDF-equivalent documents and myriad spreadsheets. This makes it challenging for owners and engineering contractors to bring together large amounts of work into an integrated design—requiring lots of manual work and rework, without the ability to drill down into root causes of discrepancies or provide forward-looking perspectives on expected outcomes.

Establishing a single source of truth (SSOT) for all stakeholders could be one disruptor the industry needs. Structuring information models in such a way that every data element (design or schedule detail) is mastered in only one place would make it much easier to prevent mistakes, duplication, or inconsistencies, thus improving control.

A basic-level SSOT would provide transparency on priorities, progress, and current and potential bottlenecks in delivery. This kind of improvement was demonstrated in a multibillion-euro capital program relying on one supply chain to deliver multiple megaprojects simultaneously. The owner and contractor worked together to create transparency in supply chain performance —from the outlook of an individual purchase order to an aggregated view by category, project scope, and asset. Appropriate access was secured for project teams, central functional teams, and top leadership to enable joint problem solving on current and emerging bottlenecks.

A higher-level SSOT could see engineering carried out in a single data set or so-called “digital twin” from the start, rather than using multiple documents. Such digital-native engineering would pivot engineers from a document-driven way of working to cross-collaboration between engineers, subcontractors, and operators to develop the design in real time.

Five: Using AI-enabled design automation

Much of what an engineer does today could be grouped into one of two categories: first, understanding the size of the component needed, then picking a relevant design from a catalog; second, doing the “creative” work on how to put together the various building blocks.

The first category is ready for disruption through algorithmic approaches. An oil and gas player in Asia recently digitized its subsea tieback design process, cutting the timeline for getting a very good first design to less than a day from around 12 weeks. This design could then be fine-tuned by engineers.

The second, or creative part of engineering, is likely to see disruption on the horizon, too, judging by recent advances in generative AI. Current technology could already enable blueprints and specifications to be produced in seconds instead of days for final refinement by an expert.

Tasks such as structural design detailing and construction schedules could also be optimized by AI. Generative scheduling, which involves optimizing the sequence of activities for execution, is already being successfully deployed in the construction industry. AI construction simulation and optimization platforms have resulted in generated major productivity improvements for a number of project owners and contractors. For example, when constructing a $300 million petrochemical factory, one such platform tool identified the opportunity to decrease labor idle time by 33 percent, reduce labor requirements by 8.5 percent, and save three weeks on the critical path schedule.

Six: Applying continuous integration and automated testing

Implementing a continuous integration (CI) workflow could significantly reduce the overheads of synchronization and tighten feedback cycles through automated testing. For example, continuously (or regularly) updating the SSOT would allow advanced automated testing of all iterative changes. This could provide immediate feedback on whether a change is both within parameters and an improvement on the existing design.

Many teams and organizations already harness simulations and physical requirements in their digital design process. This could be further optimized through digital twin and AI-powered use-based tests. These could validate improvements by simulating the final stakeholder’s asset operation, thus ensuring rapid actionable feedback on every design iteration.

This kind of product-use simulation is a step up from the classical physics-based simulations typically used in engineering. In effect, it provides end-to-end visibility for all stakeholders at every design update. Downstream consequences, such as financial implications or maintenance requirements, could also be calculated and made visible instantly, supplemented by AI-enabled user testing of the full asset.

Such a use-based approach allowed the Emirates Team New Zealand to iterate ten times faster on their sailboat design —ultimately winning them the prestigious America’s Cup. For the sailing vessel, the QuantumBlack, AI by McKinsey team took physical simulation and design one step further by training a digital AI pilot as a stand-in for the team’s pilot. This allowed the team’s sailors to spend less time in their simulator, and designers to iterate an order of magnitude faster by simulating the use of the vessel in the competition. 5 “ Flying across the sea, propelled by AI ,” McKinsey, March 17, 2021.

Seven: Adopting open sourcing

Open sourcing is commonly used in software engineering, allowing universal access to designs or scripts to encourage collaboration on new ideas, optimize existing products, and provide broad access to solutions.

A significant proportion of engineering design work is repeating what has already been done—for example, designing a distillation column. Open-sourcing designs, with no (or limited) real business IP value, could spur innovation. This could especially help nascent technologies that play an important role in the energy transition, where risk is high and debugging essential.

A gold-mining company used an open-source approach to solve some of its biggest technology issues. Every year, the company organized a global conference in a compelling location and paid for invitees’ flights and accommodations. To participate, delegates needed to have done meaningful research and written a paper on the company’s most pressing technology challenges. This moved problem solving from a small group of engineers to a global pool of talent.

Open sourcing has also emerged as a tool to find solutions for reducing carbon emissions. For example, the Northern Lights project is developing the world’s first open-source CO 2 transport and storage infrastructure, located on the Norwegian Continental Shelf. This initiative is partially funded by the Norwegian government and has attracted partnerships with energy players, engineering firms, and oilfield service companies.

Rethinking the traditional business model

Combining all seven disruptors could be a game changer for the engineering sector—and critical to the net-zero transition. However, realizing these changes will not be easy. The engineering sector finds itself trapped in a traditional business model that does not incentivize acceleration and optimization.

However, if the product delivered by engineering is reframed, the industry could shift its business model from being paid for inputs, to being paid for output (the product).

For example, in early-stage engineering, the product is a business case for investment with a robust NPV. Could a reimagined engineering remuneration approach be linked to the NPV of the target asset instead of to expectations of a potential on-time delivery of design, cost, and schedule estimates?

In detailed engineering, the product is construction productivity in relation to sequence, volumes, schedule, and quality. Revenue generation comes from first or ramped-up production. Could a reimagined engineering incentive be instead linked to construction productivity or to first at-scale production?

Naturally, a reimagined business model would need to share the gains and the pains across project stakeholders. Here, new, more collaborative contracting approaches are already delivering materially better outcomes than traditional “adversarial” models. For example, in hospital buildouts in the United States, collaborative contracting has resulted in 15 to 20 percent improvement in cost and schedule performance compared with traditional contracts.

The urgency of the energy transition is creating the positive momentum for change that the engineering sector needs. By daring to combine all seven disruptive features—each of which has been proven to work on its own—and by engaging with asset owners to redefine the business model to align incentives, engineering players could create a credible, sustainable competitive edge.

Sverre Fjeldstad is a partner in McKinsey’s Oslo office, where Natalya Katsap is an associate partner. Prakash Parbhoo is an alumnus of the Johannesburg office.

The authors wish to thank Jan Koeleman, Matthew Oswalt, and Koen Vermeltfoort for their contributions to this article.

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Procurement Tactics

ChatGPT & AI in Procurement Course Free Preview Lesson

procurement business model

Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Procurement Business Partner – Everything You Need To Know

Table of content

What is a Procurement Business Partner?

What purpose do they serve.

  • Roles and Responsibilities

Frequently asked questions

Key take-aways

  • A procurement business partner is a collaborator aligning internal stakeholders and suppliers with the overall business strategy.
  • Conducts strategic sourcing, supplier management, contract negotiation, cost optimization, and data-driven insights for efficient procurement.
  • Vital for company success, indicating growth, efficiency, risk mitigation, cost savings, operational diversity, and innovation through strategic supplier engagement.

Whom can you consider a procurement business partner? Are they different from suppliers?

In the intricate web of business where strategic decisions are paramount, the concept of procurement business partnering shines as a guiding light. 

In this article, let’s take a closer look at answers circulating around procurement business partners and how they can transform the way companies manage their procurement processes. 

At its core, a procurement business partner is a seasoned professional who collaborates closely with both internal stakeholders and external suppliers to strategically procurement process . Basically, having a procurement business partner is like having a trusted ally who speaks both the language of procurement and business strategy. 

Furthermore, the concept of procurement business partnering is a collaborative approach that integrates procurement functions with stricter and more defined business goals. Thus, using this approach nurtures seamless communication between company departments, suppliers, and promote leadership–everything in your company working together to achieve common objectives.

A procurement business partner acts as a bridge between various departments within your company and your suppliers. He or she works to align your procurement activities with your company’s overall business strategy. With what they do, your sourcing, purchasing, and supplier management tasks become more efficient, especially with contributing to your business’s overall success.

Moreover, aside from the aforementioned, they also understand your business’s needs, priorities, and align your procurement processes with your business objectives and bottom line.

Procurement Strategy Course

Procurement Business Partner: Its Roles and Responsibilities

There are many roles for a procurement business partner to maintain. We summarized 5 of them for you:

1. Strategic Sourcing

Procurement business partners conduct in-depth market research that helps better identifying potential suppliers. They also help in thoroughly evaluating their capabilities and in negotiating more favorable terms. This smart tactic not only involves cost considerations but also ensures quality, reliability, and strongly-founded innovation.

2. Supplier Relationship Management

To build and nurture strong relationships with suppliers is a core responsibility. Procurement business partners are expected to be the ones engaging in ongoing communication with your suppliers to address challenges and explore opportunities for collaboration. Generally, they make sure that your suppliers values and insights align with yours.

3. Contract Management

Your procurement business partner is also responsible for drafting, reviewing, and negotiating contracts with your suppliers. They ensure that agreements are clear, free of any loop-holes, compliant, and favorable for both parties. 

4. Cost Optimization

While cost is a significant factor, procurement business partners look beyond cost savings. They should continuously seek opportunities that drive value, whether through cost-saving measures, process improvements, and other sustainable solutions.

5. Data-Driven Insights

By utilizing data analytics, procurement business partners track and analyze key performance insights (KPIs) and metrics. Such insights aid in making well-informed decisions, identify which areas need improvement, and demonstrate the value of procurement activities.

Importance of a Procurement Business Partner

Procurement business partners play a vital role in your company’s success for several reasons including:

1. Proof of a Company’s Growth

Adopting the concept of a procurement business partner suggests your company’s growth and maturity. Because you integrated its functions, you made actions and decisions way beyond the traditional procurement process. 

2. Operational Efficiency

Because of having a procurement business partner, you gain an expert who gives advices on evaluation plans and procurement tactics to ensure a commitment to customer satisfaction and value for money. Thus, effective procurement processes lead to streamlined operations and improved resource utilization.

3. Risk Mitigation and Management

As a part of their role, procurement business partners develop and oversee supplier and contract management plans. Thus, they make it easy for you to discern potential risks and mitigate them to guarantee continuity of operations, especially in economic downturns.

4. Cost Savings

Even beyond cost reduction , they also discover ways to enhance your company’s value and reduce waste throughout the entire supply chain.

5. Diverse Business Operations

Having a business partner to aid in your procurement processes opens doors for better opportunities with collaborations and relationships. Moreover, it nurtures diversity in business connections and networks.

6. Innovation

Procurement business partners engage with suppliers strategically which lets them refine, lead cross-functional employees in evaluating suppliers, and develop necessary improvements for you to make. In simplest terms: they foster a culture for your business’s continuous progress.

The role of a procurement business partner transcends the traditional confines of procurement that contributes to the overall success of a company. Their strategic approach, supplier management expertise, and focus on creating value that makes them an indispensable asset in today’s complex business landscape.

Through nurturing collaboration, innovation, goal alignment, and embracing a strategic mindset, you can elevate your procurement processes to new heights.

In addition, as companies continue to recognize the significance of efficient procurement processes, business partners will only grow in prominence and shape the future business operation functions.

What is a procurement business partner?

It can be an individual or a group of people that helps make procurement processes. They are in charge of improving every aspect of your supply chain management to achieve better results that raises your company value at the same time.

What are the primary roles of a procurement business partner?

Its roles include strategic sourcing, supplier relationship management, contract management, handling and management of data-driven insights, and other alike responsibilities. It aims to help you achieve optimal business success.

Why is having a procurement business partner important?

Having one proves that you are ready to increase your company’s value beyond traditional processes. Beyond that, it also mitigates all possible risks revolving around suppliers and other factors to lead to streamlined business operations.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics

IMAGES

  1. 6 Procurement Models You Should Be Using

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  2. What Is the Procurement Life Cycle? 16 Stages Explained

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  3. Procurement’s new operating model

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  4. An e-procurement business model (Gebauer and Shaw, 2002) consumer

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  5. Procurement Process Flow

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  6. The Procurement Cycle

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COMMENTS

  1. Procurement trends in 2024 and beyond

    Building the procurement operating model of the future. Procurement's expanded role implies a reinvention of its internal structures so that the function can respond more quickly, use technology more effectively, and support the business more strategically—developing the buyer of the future and a new talent model. Agility through digitization.

  2. A next-generation operating model for source-to-pay

    This extra impact comes from a wide range of sources. The next-generation procurement operating model will be equipped to deliver incremental value in ways that are underexploited today, such as tail-spend management, payment-timing optimization, supply-chain finance, and analytics-driven insights.

  3. PDF High Impact Procurement Operating Models

    The concept of a procurement operating model (POM) would seem familiar territory for those who have watched the changing landscape closely. Like most, our original thought was to ... research that the more direct materials-focused the business model, the more likely that CPOs will report to the CEO. Outsourced procurement is an

  4. Six Best Practices for Elevating Procurement at Your Organization

    An organization's procurement practice can help offer competitive advantages by embracing new processes and adopting new technologies that give it a greater strategic role, helping you improve ...

  5. Understanding the Procurement Business Model: An In-Depth Analysis

    Procurement business model is the process of acquiring goods and services from external sources to meet an organization's needs. In simple terms, procurement involves sourcing the right products or services at the best possible price while ensuring quality and timely delivery. The procurement business model encompasses a range of activities ...

  6. Designing The Perfect Procurement Operating Model

    The operating model of a procurement function needs to be consistent with a company's overall strategy, global organization, and culture. It also needs to be aligned to its supplier market. Balancing internal and external pressures is a difficult task - and the target is often a moving one. The best organization will be the one that is ...

  7. Enabling the next-generation operating model in procurement

    A next-generation operating model for source-to-pay. A next-generation procurement operating model that capitalizes on advances in digital, data, and analytics delivers new levels of performance across the value-creation lifecycle. The new model reframes the remit of the procurement function (the comprehensive set of interconnected activities ...

  8. Procurement Operating Models

    The procurement operating model should align with these strategic priorities to support value creation, cost optimization, risk management, and innovation. 2. Team Size and Spend. Evaluate the size of the procurement team and the organization's spend on goods and services.

  9. An agile procurement operating model

    An agile operating model will tie it all together and includes areas like: Structure - procurement's role, size, shape, automation, and delivery model; the procurement organization structure will be lean, right-sized, and focused on higher-value services. Decisions - methods, decision-making, and governance; strong continued importance on ...

  10. Five Steps To Creating A Strategic Small-Business Procurement ...

    Step 5: Be Realistic About Timelines But Check In Frequently. Creating a strategic procurement cycle takes time. While some of these steps can have an immediate effect on improved procurement ...

  11. Procurement Operating Models: Which is the Best One?

    A centralised procurement model is when a single department handles the purchasing of goods and services for a whole organisation. This is usually done from a central location, like a head office. Let's look at another example. George is the procurement manager for a large mining company and works out of the head office in Canada.

  12. What Is Procurement? Your Guide to the Entire Process

    Starting with a Template Model. The fine details of procurement are the responsibility of your own business, as exactly how the system works varies from company to company. Firms can be small or large, be centralized or global, and run on different models accordingly. The local model.

  13. Procurement Models: An Explanation

    Ultimately, your procurement operating model has to start with an understanding of your overall business strategy and align your procurement practices with those desired outcomes. For instance, if your organization is in growth mode, your procurement strategy needs to emphasize supplier Innovation, development, and management.

  14. The Basics of Procurement Models

    This mix reflects a federal approach where some control is central, and some is local. 5. Centrally-led Network Procurement Model. In this model, all local units work together, but the center is the main boss, making most of the decisions. Consider a global technology company.

  15. PDF Procurement: Business Process Model Descriptions and Key Performance

    1.1.1.3 Procurement Business Strategy 1.1.3.3 Procurement Value Arch & Realization Procurement Performance Reporting and Decision Support 3.1.1.3 ... (as defined by level 4 in the business process model) within the overall Procurement function. This includes legal analysis and support for terms and conditions in contracts. The establishment,

  16. Procurement in Business: Meaning, How it Works, & Best Practices

    Procurement is the process of sourcing and purchasing goods and services for use in a business. It includes the purchasing process - from issuing a purchasing order request through to invoice payment - along with the surrounding planning, strategy, and procedures that enable a company to meet the demands of consumers.

  17. The hidden source of value: Procurement

    The new operating model enabled by these improvements shifted more than half of category managers' time to value-added tasks—and accelerated the sourcing process by more than 30 percent. ... can be generated through collaborative approaches, and of how these savings are reflected in the P&L. For example, procurement and business teams can ...

  18. 5 Models for procurement organisation

    The 3 basic models. There are 3 basic models for procurement, any others being a combination of these three: Local - All activity, decision making and control is performed locally and is autonomous. Central - Decision making and procurement activity is centralised. (There may be local activity and controls outside the scope of procurement ...

  19. Overview of Procurement Business Process Model

    Business Process Modeling carries through to almost every aspect of Procurement: Manages the deployment, upgrade, integration, and configuration of the product. Provides outlines for Oracle Fusion documentation. Structures role-based access security so that tasks and activities are assigned appropriately. Arranges messaging and online help.

  20. Streamline Your Procurement Process with Business Process Model

    Creating a business process model diagram is a crucial step in streamlining your procurement process. It helps you visualize and understand the different steps involved, identify potential bottlenecks or inefficiencies, and find opportunities for improvement. Here's a step-by-step guide on how to create a business process model diagram: 1.

  21. 9 Steps to Creating a Procurement Process for Your Small Business

    9. Review and adjust your procurement strategy. All business strategies are living documents. Nothing, including contracts, is set in stone. Your procurement KPIs will highlight opportunities for improvement and areas where you could save money by adjusting your process or negotiating better contract terms.

  22. Procurement Business Process Models

    Procurement Business Process Models. Understanding the Oracle Fusion Business Process Model (BPM) is essential. BPM informs the deployment, upgrade, integration, and configuration of the product. Oracle Fusion documentation follows the process models very closely. Roles Based Access security is also tied closed to the BPMl, so that tasks and ...

  23. A framework for Procurement Business Partnering.

    Defining Procurement SBP. Raju Venkataraman (1) neatly defined (Finance) business partnering as. " what finance teams do when they create value by providing insights (often data-led), thus ...

  24. Improving capital projects planning with technology

    There are multiple parallels between agile software development and the engineering, procurement, and construction sector: ... Naturally, a reimagined business model would need to share the gains and the pains across project stakeholders. Here, new, more collaborative contracting approaches are already delivering materially better outcomes than ...

  25. Procurement Business Partner

    A procurement business partner is a collaborator aligning internal stakeholders and suppliers with the overall business strategy. Conducts strategic sourcing, supplier management, contract negotiation, cost optimization, and data-driven insights for efficient procurement. Vital for company success, indicating growth, efficiency, risk mitigation ...